Page 1 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
Plaintiff,
)
)
v.
)
No. 1:23-cv-01599-ABJ-ZMF
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES INC.,
)
BAM MANAGEMENT US HOLDINGS
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
COMPLAINT TABLE OF CONTENTS
SUMMARY ........................................................................................................................
VIOLATIONS ........................................................................................................................
NATURE OF THE PROCEEDING AND RELIEF SOUGHT ...................................................... JURISDICTION AND VENUE ..................................................................................................... DEFENDANTS ........................................................................................................................
CERTAIN OTHER ENTITIES .................................................................................................... BACKGROUND ........................................................................................................................
I.
STATUTORY AND LEGAL FRAMEWORK ................................................................ A.
The Securities Act’s Registration and Disclosure Requirements .........................
B.
The Exchange Act’s Registration and Other Requirements ................................. i.
Registration of Exchanges ........................................................................
ii.
Registration of Broker-Dealers .................................................................
iii.
Registration of Clearing Agencies ............................................................ 16Page 2 C.
II.
Registration of Exchanges, Broker-Dealers, and Clearing Agencies Is Essential to
the Proper Functioning of the U.S. Securities Markets and to the Protection of
Investors ................................................................................................................
BACKGROUND ON CRYPTO ASSETS AND CRYPTO TRADING PLATFORMS A.
Crypto Assets ........................................................................................................
B.
Consensus Mechanisms and Validation of Transactions on a Blockchain ...........
C.
The Offer and Sale of Crypto Assets ....................................................................
D.
Crypto Asset Trading Platforms ...........................................................................
E.
The DAO Report ...................................................................................................
FACTS ........................................................................................................................
III.
UNDER ZHAO’S CONTROL, BINANCE PROVIDED EXCHANGE, BROKERDEALER, AND CLEARING AGENCY SERVICES TO U.S. INVESTORS THROUGH
THE BINANCE.COM PLATFORM................................................................................ A.
The Binance.com Platform Provides a Marketplace and Facilities for Trading
Crypto Asset Securities. ........................................................................................ i.
Display and Order Book. ..........................................................................
ii.
Order Matching and Trading Rules ..........................................................
iii.
Binance OTC ............................................................................................
B.
Binance Holds and Controls Customers’ Funds and Crypto Assets. ....................
C.
Binance Clears and Settles Customers’ Trades. ...................................................
D.
Binance’s Receives Compensation. ......................................................................
E.
Zhao and Binance Actively Solicited Investors in the United States to Trade
Crypto Assets on the Binance.com Platform. ....................................................... i.
Binance Marketed its Services Worldwide, Including Specifically to U.S.
Customers. ................................................................................................
ii.
Zhao and Binance Developed a Plan to Evade U.S. Legal Scrutiny While
Continuing to Profit from U.S. Investors. ................................................. 29Page 3 iii.
IV.
ZHAO AND BINANCE ESTABLISHED THE BINANCE.US PLATFORM WHILE
MAINTAINING SUBSTANTIAL INVOLVEMENT AND CONTROL OF ITS
OPERATIONS..............................................................................................................
A.
Zhao and Binance Created U.S. Entities BAM Management and BAM Trading
and Developed the Binance.US Platform. ............................................................
B.
Binance Announced the Launch of the Binance.US Platform. .............................
C.
Zhao and Binance Exerted Substantial Control Over and Were Integral
Participants in the Operations of the Binance.US Platform and BAM Trading. ..
D.
V.
Consistent with the Tai Chi Plan, Binance Encouraged and Assisted U.S.
Customers to Circumvent Binance’s Supposed Restrictions. ...................
i.
Zhao and Binance Directed and Were Integrally Involved in the Operation
of the Binance.US Platform’s Trading Services. ......................................
ii.
Zhao and Binance Directed Selection of Crypto Assets for Trading on the
Binance.US Platform. ...............................................................................
iii.
Zhao and Binance Have Controlled BAM Trading’s Bank Accounts and
Finances. ...................................................................................................
iv.
Zhao and Binance Controlled Binance.US Platform Customers’ Funds and
Crypto Assets Deposited, Held, Traded, and/or Accrued on the Platform.
...................................................................................................................
v.
Zhao and Binance Directed BAM Trading to Engage Zhao-Controlled
Market Makers on the Binance.US Platform. ...........................................
Zhao Rejected BAM CEO A’s and BAM CEO B’s Efforts to Give BAM Trading
“Independence” from Zhao and Binance. .............................................................
UNDER ZHAO’S CONTROL, BAM TRADING AND BINANCE PROVIDE
EXCHANGE AND CLEARING AGENCY FUNCTIONS TO U.S. CUSTOMERS,
AND BAM TRADING ALSO PROVIDES BROKERAGE SERVICES TO U.S.
CUSTOMERS...............................................................................................................
A.
BAM Trading and Binance, Under Zhao’s Control, Solicit Investors. ................
B.
BAM Trading and Binance Together, Under Zhao’s Control, Maintain and
Provide a Marketplace and Facilities for Trading Crypto Asset Securities. ......... i.
Order Matching and Trading Rules of the Binance.US Platform ............. 54Page 4 ii.
VI.
VII.
VIII.
The Binance.US Platform’s OTC Desk, OCBS, and Convert Services ...
C.
BAM Trading and Binance, Under Zhao’s Control, Hold and Control Customers’
Funds and Crypto Assets. .....................................................................................
D.
BAM Trading Receives Compensation. ...............................................................
BAM TRADING AND BAM MANAGEMENT ENGAGED IN ACTS AND
PRACTICES THAT OPERATED AS A FRAUD AND DECEIT UPON, AND MADE
FALSE AND MISLEADING STATEMENTS TO, INVESTORS. ................................ A.
BAM Trading and BAM Management Touted Their Prohibition of Manipulative
Trading on the Binance.US Platform to Investors. ...............................................
B.
BAM Trading and BAM Management Misleadingly Touted the Trading Volume
of the Binance.US Platform and of Various Crypto Asset Securities to Investors.
........................................................................................................................
C.
BAM Trading’s and BAM Management’s Statements Were Materially False and
Misleading, and BAM Trading and BAM Management Engaged in Acts and
Practices That Operated as a Fraud and Deceit Upon Purchasers. .......................
D.
Sigma Chain’s Wash Trading on the Binance.US Platform Further Demonstrated
the Falsity of BAM Trading and BAM Management’s Statements. ....................
E.
BAM Trading’s and BAM Management’s False and Misleading Statements and
Deceptive Acts and Practices Were Material........................................................
BINANCE AND BAM TRADING ENGAGED IN UNREGISTERED OFFERS AND
SALES OF SECURITIES. ............................................................................................... A.
Binance Offered and Sold BNB as a Security ......................................................
B.
Binance Offered and Sold BUSD as a Security. ...................................................
C.
Binance Offered and Sold Its BNB Vault and Simple Earn Programs as Securities.
........................................................................................................................
D.
BAM Trading Offered and Sold Its Staking Program as a Security. ....................
THE CRYPTO ASSETS TRADED ON THE BINANCE.COM PLATFORM AND
BINANCE.US PLATFORM INCLUDE ASSETS THAT WERE OFFERED AND
SOLD AS SECURITIES. ................................................................................................. A.
SOL ....................................................................................................................... 88Page 5 IX.
B.
ADA ......................................................................................................................
C.
MATIC ..................................................................................................................
D.
FIL.....................................................................................................................
E.
ATOM .................................................................................................................
F.
SAND..................................................................................................................
G.
MANA ................................................................................................................
H.
ALGO .................................................................................................................
I.
AXS.....................................................................................................................
J.
COTI ...................................................................................................................
BINANCE AND BAM TRADING WERE REQUIRED TO BUT DID NOT REGISTER
AS AN EXCHANGE, BROKER-DEALER, OR CLEARING AGENCY. ...................
FIRST CLAIM FOR RELIEF .................................................................................................... SECOND CLAIM FOR RELIEF ............................................................................................... THIRD CLAIM FOR RELIEF ................................................................................................... FOURTH CLAIM FOR RELIEF ............................................................................................... FIFTH CLAIM FOR RELIEF .................................................................................................... SIXTH CLAIM FOR RELIEF.................................................................................................... SEVENTH CLAIM FOR RELIEF ............................................................................................. EIGHTH CLAIM FOR RELIEF ................................................................................................ NINTH CLAIM FOR RELIEF ................................................................................................... TENTH CLAIM FOR RELIEF .................................................................................................. ELEVENTH CLAIM FOR RELIEF .......................................................................................... TWELFTH CLAIM FOR RELIEF............................................................................................. 132Page 6 THIRTEENTH CLAIM FOR RELIEF ...................................................................................... PRAYER FOR RELIEF ............................................................................................................. DEMAND FOR JURY TRIAL .................................................................................................. 13
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PlainSite Cover Page
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Case 1:23-cv-01599-ABJ-ZMF Document 204 Filed 01/12/24 Page 1 of 6
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
Plaintiff,
)
)
v.
)
No. 1:23-cv-01599-ABJ-ZMF
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES INC.,
)
BAM MANAGEMENT US HOLDINGS
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
COMPLAINT TABLE OF CONTENTS
SUMMARY .................................................................................................................................... 1
VIOLATIONS ................................................................................................................................ 5
NATURE OF THE PROCEEDING AND RELIEF SOUGHT ...................................................... 6
JURISDICTION AND VENUE ..................................................................................................... 7
DEFENDANTS .............................................................................................................................. 8
CERTAIN OTHER ENTITIES .................................................................................................... 10
BACKGROUND .......................................................................................................................... 12
I.
STATUTORY AND LEGAL FRAMEWORK ................................................................ 12
A.
The Securities Act’s Registration and Disclosure Requirements ......................... 13
B.
The Exchange Act’s Registration and Other Requirements ................................. 13
i.
Registration of Exchanges ........................................................................ 14
ii.
Registration of Broker-Dealers ................................................................. 16
iii.
Registration of Clearing Agencies ............................................................ 16
PDF Page 3
Case 1:23-cv-01599-ABJ-ZMF Document 204 Filed 01/12/24 Page 2 of 6
C.
II.
Registration of Exchanges, Broker-Dealers, and Clearing Agencies Is Essential to
the Proper Functioning of the U.S. Securities Markets and to the Protection of
Investors ................................................................................................................ 17
BACKGROUND ON CRYPTO ASSETS AND CRYPTO TRADING PLATFORMS 19
A.
Crypto Assets ........................................................................................................ 19
B.
Consensus Mechanisms and Validation of Transactions on a Blockchain ........... 20
C.
The Offer and Sale of Crypto Assets .................................................................... 20
D.
Crypto Asset Trading Platforms ........................................................................... 21
E.
The DAO Report ................................................................................................... 22
FACTS .......................................................................................................................................... 23
III.
UNDER ZHAO’S CONTROL, BINANCE PROVIDED EXCHANGE, BROKERDEALER, AND CLEARING AGENCY SERVICES TO U.S. INVESTORS THROUGH
THE BINANCE.COM PLATFORM................................................................................ 23
A.
The Binance.com Platform Provides a Marketplace and Facilities for Trading
Crypto Asset Securities. ........................................................................................ 24
i.
Display and Order Book. .......................................................................... 24
ii.
Order Matching and Trading Rules .......................................................... 25
iii.
Binance OTC ............................................................................................ 25
B.
Binance Holds and Controls Customers’ Funds and Crypto Assets. .................... 26
C.
Binance Clears and Settles Customers’ Trades. ................................................... 27
D.
Binance’s Receives Compensation. ...................................................................... 27
E.
Zhao and Binance Actively Solicited Investors in the United States to Trade
Crypto Assets on the Binance.com Platform. ....................................................... 28
i.
Binance Marketed its Services Worldwide, Including Specifically to U.S.
Customers. ................................................................................................ 28
ii.
Zhao and Binance Developed a Plan to Evade U.S. Legal Scrutiny While
Continuing to Profit from U.S. Investors. ................................................. 29
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Case 1:23-cv-01599-ABJ-ZMF Document 204 Filed 01/12/24 Page 3 of 6
iii.
IV.
ZHAO AND BINANCE ESTABLISHED THE BINANCE.US PLATFORM WHILE
MAINTAINING SUBSTANTIAL INVOLVEMENT AND CONTROL OF ITS
OPERATIONS.................................................................................................................. 36
A.
Zhao and Binance Created U.S. Entities BAM Management and BAM Trading
and Developed the Binance.US Platform. ............................................................ 36
B.
Binance Announced the Launch of the Binance.US Platform. ............................. 38
C.
Zhao and Binance Exerted Substantial Control Over and Were Integral
Participants in the Operations of the Binance.US Platform and BAM Trading. .. 38
D.
V.
Consistent with the Tai Chi Plan, Binance Encouraged and Assisted U.S.
Customers to Circumvent Binance’s Supposed Restrictions. ................... 32
i.
Zhao and Binance Directed and Were Integrally Involved in the Operation
of the Binance.US Platform’s Trading Services. ...................................... 39
ii.
Zhao and Binance Directed Selection of Crypto Assets for Trading on the
Binance.US Platform. ............................................................................... 40
iii.
Zhao and Binance Have Controlled BAM Trading’s Bank Accounts and
Finances. ................................................................................................... 41
iv.
Zhao and Binance Controlled Binance.US Platform Customers’ Funds and
Crypto Assets Deposited, Held, Traded, and/or Accrued on the Platform.
................................................................................................................... 43
v.
Zhao and Binance Directed BAM Trading to Engage Zhao-Controlled
Market Makers on the Binance.US Platform. ........................................... 46
Zhao Rejected BAM CEO A’s and BAM CEO B’s Efforts to Give BAM Trading
“Independence” from Zhao and Binance. ............................................................. 48
UNDER ZHAO’S CONTROL, BAM TRADING AND BINANCE PROVIDE
EXCHANGE AND CLEARING AGENCY FUNCTIONS TO U.S. CUSTOMERS,
AND BAM TRADING ALSO PROVIDES BROKERAGE SERVICES TO U.S.
CUSTOMERS................................................................................................................... 51
A.
BAM Trading and Binance, Under Zhao’s Control, Solicit Investors. ................ 51
B.
BAM Trading and Binance Together, Under Zhao’s Control, Maintain and
Provide a Marketplace and Facilities for Trading Crypto Asset Securities. ......... 53
i.
Order Matching and Trading Rules of the Binance.US Platform ............. 54
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Case 1:23-cv-01599-ABJ-ZMF Document 204 Filed 01/12/24 Page 4 of 6
ii.
VI.
VII.
VIII.
The Binance.US Platform’s OTC Desk, OCBS, and Convert Services ... 54
C.
BAM Trading and Binance, Under Zhao’s Control, Hold and Control Customers’
Funds and Crypto Assets. ..................................................................................... 55
D.
BAM Trading Receives Compensation. ............................................................... 57
BAM TRADING AND BAM MANAGEMENT ENGAGED IN ACTS AND
PRACTICES THAT OPERATED AS A FRAUD AND DECEIT UPON, AND MADE
FALSE AND MISLEADING STATEMENTS TO, INVESTORS. ................................ 58
A.
BAM Trading and BAM Management Touted Their Prohibition of Manipulative
Trading on the Binance.US Platform to Investors. ............................................... 59
B.
BAM Trading and BAM Management Misleadingly Touted the Trading Volume
of the Binance.US Platform and of Various Crypto Asset Securities to Investors.
............................................................................................................................... 61
C.
BAM Trading’s and BAM Management’s Statements Were Materially False and
Misleading, and BAM Trading and BAM Management Engaged in Acts and
Practices That Operated as a Fraud and Deceit Upon Purchasers. ....................... 63
D.
Sigma Chain’s Wash Trading on the Binance.US Platform Further Demonstrated
the Falsity of BAM Trading and BAM Management’s Statements. .................... 65
E.
BAM Trading’s and BAM Management’s False and Misleading Statements and
Deceptive Acts and Practices Were Material........................................................ 68
BINANCE AND BAM TRADING ENGAGED IN UNREGISTERED OFFERS AND
SALES OF SECURITIES. ............................................................................................... 69
A.
Binance Offered and Sold BNB as a Security ...................................................... 70
B.
Binance Offered and Sold BUSD as a Security. ................................................... 77
C.
Binance Offered and Sold Its BNB Vault and Simple Earn Programs as Securities.
............................................................................................................................... 79
D.
BAM Trading Offered and Sold Its Staking Program as a Security. .................... 81
THE CRYPTO ASSETS TRADED ON THE BINANCE.COM PLATFORM AND
BINANCE.US PLATFORM INCLUDE ASSETS THAT WERE OFFERED AND
SOLD AS SECURITIES. ................................................................................................. 85
A.
SOL ....................................................................................................................... 88
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Case 1:23-cv-01599-ABJ-ZMF Document 204 Filed 01/12/24 Page 5 of 6
IX.
B.
ADA ...................................................................................................................... 92
C.
MATIC .................................................................................................................. 94
D.
FIL......................................................................................................................... 98
E.
ATOM ................................................................................................................. 104
F.
SAND.................................................................................................................. 108
G.
MANA ................................................................................................................ 111
H.
ALGO ................................................................................................................. 114
I.
AXS..................................................................................................................... 119
J.
COTI ................................................................................................................... 121
BINANCE AND BAM TRADING WERE REQUIRED TO BUT DID NOT REGISTER
AS AN EXCHANGE, BROKER-DEALER, OR CLEARING AGENCY. ................... 123
FIRST CLAIM FOR RELIEF .................................................................................................... 125
SECOND CLAIM FOR RELIEF ............................................................................................... 125
THIRD CLAIM FOR RELIEF ................................................................................................... 126
FOURTH CLAIM FOR RELIEF ............................................................................................... 127
FIFTH CLAIM FOR RELIEF .................................................................................................... 128
SIXTH CLAIM FOR RELIEF.................................................................................................... 128
SEVENTH CLAIM FOR RELIEF ............................................................................................. 129
EIGHTH CLAIM FOR RELIEF ................................................................................................ 129
NINTH CLAIM FOR RELIEF ................................................................................................... 130
TENTH CLAIM FOR RELIEF .................................................................................................. 131
ELEVENTH CLAIM FOR RELIEF .......................................................................................... 131
TWELFTH CLAIM FOR RELIEF............................................................................................. 132
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Case 1:23-cv-01599-ABJ-ZMF Document 204 Filed 01/12/24 Page 6 of 6
THIRTEENTH CLAIM FOR RELIEF ...................................................................................... 133
PRAYER FOR RELIEF ............................................................................................................. 133
DEMAND FOR JURY TRIAL .................................................................................................. 136
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