According to a report today by The Wall Street Journal, the U.S. Securities and Exchange Commission is investigating the connections between cryptocurrency exchange Binance US and two trading companies linked to Binance founder Changpeng Zhao--Sigma Chain AG and Merit Peak Ltd -.
According to the Journal's anonymous source, the agency would like to know more about Zhao's involvement as well as whether customers were properly informed. A closed investigation does not necessarily mean wrongdoing.
Although Merit Peak information is not publicly available, Sigma Chain AG, located in Zug, Switzerland has attracted many crypto companies and organizations like the Ethereum Foundation and Tezos. According to corporate filings Zhao was the president from September 2019 until now. Chen Guangying is the current president. He has been listed on Binance corporate documents to be its executive director. According to the Journal, Zhao was still in charge of Merit Peak and Sigma Chain as of last year.
They act as market makers for Binance US and use their assets to make trades. The liquidity of a cryptocurrency exchange is as important as its quality. You need someone who can sell Ethereum to you if you wish to purchase $10,000 at the current rate. Market makers provide liquidity to exchanges by buying and selling assets, and making a profit on each trade. It's kind of like a casino.
What does the SEC have with it? It depends on who you ask. The agency is charged with protecting consumers and oversight of exchanges engaged in spot trading of securities--financial assets that are bought with an expectation of profit derived from the efforts of a company or core team. The SEC asserts that shares in companies are securities, and some cryptocurrencies are also securities.
Binance US claims it does not trade securities. It may have some point. It lists half the coins and tokens of Coinbase, a U.S.-based competitor. Its 72 assets put it third behind Coinbase, which lists more than twice as many coins and tokens.
The SEC Chairman Gary Gensler has maintained that the agency should be given a wider remit. Gensler claimed last year that the agency should be responsible for stablecoins and fiat-pegged tokens which are the lifeblood of the cryptocurrency ecosystem.
Binance's name was mentioned a lot in the last year regarding U.S. government agencies. In 2021, it was the subject of an inter-agency probe by both the Department of Justice (DJ) and the Internal Revenue Service (IRS).
The Commodity Futures Trading Commission has also been investigating the matter. They claim that the platform made it too easy to use by Americans. There are hundreds of trading pairs and listings on the main exchange. It also allows derivatives trading. This means that people can speculate about the future value of assets, unlike its US affiliate. These trades are not allowed in the United States. Later, the CFTC looked into insider trading at this exchange.
Although the US affiliate has not been subject to any investigations, the SEC did subpoena the exchange in 2020 to obtain information about its interaction with the global exchange. According the Journal.