The United States Securities and Exchange Commission (SEC) is taking measures to issue a legal summons to Changpeng Zhao, the CEO of Binance, a cryptocurrency exchange. This move comes after the SEC filed a lawsuit against Binance and Zhao for alleged unregistered securities operations. The SEC is seeking “alternative service” from the U.S. district court in Washington, D.C. to summon Zhao to address the charges brought against him and the company.
The SEC requested alternative service in a document filed with the district court on June 7. The SEC explained that typical service, which requires the presence and signature of the person being served, may prove difficult in this case. According to the SEC, Zhao and Binance are not your typical foreign entity and individual, given that they are known for disagreeing with the premise of a headquarters or domicile, let alone identifying one. Zhao, in particular, is known to be protective of revealing his whereabouts.
Despite the likelihood that Zhao would not be legally required to make a court appearance merely to respond to the summons, the court still requires some form of service to occur, even if the defendant is not required to appear. Zhao’s location remains unknown at the time of publication. He is a Chinese-born Canadian citizen who reportedly bought a home in Dubai in 2021 and splits his time between Dubai and France, according to a Binance spokesperson.
The SEC also asked the court to order Zhao and Binance to promptly provide a “sworn accounting,” essentially a legal disclosure of financial information. The SEC has been unable to discern the full extent of the defendant’s assets, the exact whereabouts of investor money, or the status or location of other assets that may be used to satisfy a money judgment against the defendants. The SEC cited logistical concerns as the mitigating factor. The filing states that the request for a sworn accounting stems from “BAM Trading’s inability to provide accurate information” concerning the whereabouts of Zhao or the company’s “location abroad.”
BAM Trading is the organization that oversees Binance.us in partnership with Binance. This setup is meant to allow the company to keep its U.S. operations separate from its other entities. The ongoing lawsuit against Binance and Zhao began after the SEC discovered that Binance allegedly allowed users in the United States to trade derivatives without registering with the regulator. According to the regulator, Binance failed to follow procedures mandated by law and failed to gather essential information about those using the platform.
Binance is a digital asset exchange that was launched in 2017 and has since become one of the most popular and fastest-growing exchanges globally. The exchange offers trading in more than 500 cryptocurrencies and has an average daily trading volume of over $18 billion. The lawsuit against Binance could have far-reaching implications on the cryptocurrency industry and the global economy at large.
This is not the first time that the SEC has taken action against cryptocurrency exchanges. The regulator has previously sued Coinbase, a prominent cryptocurrency exchange, for breaking US securities rules. In that case, the SEC claimed that Coinbase had allowed users to trade digital tokens that were essentially securities, without obtaining the necessary license. Coinbase ultimately settled the lawsuit, agreeing to pay a fine of $6.5 million.
In conclusion, the SEC’s request for alternative service from the US district court is part of a wider effort to hold cryptocurrency exchanges accountable. In its ongoing lawsuit against Binance and Zhao, the SEC has pointed out the difficulties associated with serving notice to Zhao and asked for a sworn accounting of the defendants’ financials to determine the extent of the harm and defend investor interests. If the SEC succeeds in its case against Binance, it will have far-reaching implications on the cryptocurrency industry and the global economy.
