Binance Will Face Criminal Indictment, Former SEC Chief Warns

• The regulatory landscape in the U.S. has become difficult for crypto firms to maneuver.
• This has been especially true in the case of Binance, which faces lawsuits from multiple regulators.
• Former SEC enforcement chief John Reed Stark, however, believes the worst is yet to come.

The regulatory landscape in the United States has become increasingly difficult for crypto firms. But one can argue that Binance is having it more difficult than others with recent lawsuits from the Commodity Futures Trading Commission and the Securities and Exchange Commission.

Nonetheless, some believe Binance’s legal woes in the U.S. are far from over. One such person is former SEC Office of Internet Enforcement Chief John Reed Stark, who has asserted that the crypto exchange will soon have the U.S. Department of Justice knocking at its door.

Reed Stark: Complaints Against Binance Read Like Criminal Indictments

In a long-form tweet on Sunday, June 11, Reed Stark argued that the DOJ had likely already prepared criminal charges against Binance, the world’s largest crypto exchange.

Reed Stark supported his claim that the CFTC and SEC complaints against Binance “read more like criminal indictments,” citing “allegations of fraud, deception, obstruction of justice and money laundering.” 

In the CFTC and SEC complaints, for example, the crypto exchange and its founder Changpeng “CZ” Zhao are accused of intentionally evading U.S. laws in certain instances to allow U.S. customers to trade on the international Binance platform and in others to allow known criminal elements to trade on the platform.

On money laundering and fraud, Reed Stark points to SEC filings that suggest that Binance commingled and mishandled billions of dollars in customer funds.

"... the SEC believes they can convince a judge right now, that the defendants have committed fraud and that investor funds are at risk," the former SEC enforcement chief asserted, underscoring the agency's move to freeze Binance.US held assets.

Another charge Reed Stark believes Binance could face is obstruction of justice. Here he points to various instances in the CFTC complaint where Binance allegedly interfered with the commission’s investigations into “VIP customer” accounts and the steps it took to destroy communications related to these activities using auto-deleting messaging platforms.

Moreover, the former SEC enforcement chief argues that it is very likely that the CFTC, the SEC, and the DOJ are in cahoots.

The CFTC, SEC, and DOJ Working Together?

Highlighting that the CFTC and SEC did not focus on money laundering charges, Reed Stark argues that it is to allow for criminal prosecution from the DOJ.

“My take is that US DOJ is working with the SEC, CFTC, and multiple informants/whistleblowers, and the next axe to fall is the filing, or unsealing of, Binance-related criminal charges,” he added.

The DOJ has reportedly been investigating Binance since at least 2018 for money laundering charges. A previous Wall Street Journal report indicated that the firm was looking to settle charges with U.S. regulators, including the DOJ.

On the Flipside

• There is no confirmation that the DOJ will file charges against Binance.
• K33 Research has suggested that there is no evidence that Binance at any point failed to hold a full reserve of customer assets, adding that, at worst, the SEC case suggests that funds were pooled together and under the control of Zhao.

Why This Matters

A criminal case against Binance could significantly impact the crypto markets more than the cases brought by the SEC and the CFTC.

Read this to learn more about how the SEC and CFTC case against Binance compare:

Binance Sued: How SEC Lawsuit Differs from CFTC Case 

Find out why a16z is expanding to the U.K.:

a16z Bets on the U.K. as U.S. Erupts with Crypto Uncertainty