Binance.US Faces Allegations of Fraud and Manipulative Trading Practices

FACTS

VI. 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.

239. Since the launch of the Binance.US Platform, BAM Trading and BAM Management, in the offer and sales of securities, obtained money and property by making untrue statements of material fact and omitting facts that rendered statements materially misleading, and engaged in acts and practices that operated as a fraud or deceit upon Binance.US customers (including retail and institutional investors in the crypto asset securities available for trading on the Binance.US Platform) and upon equity investors in BAM Management, concerning the extent to which BAM Trading and BAM Management had implemented controls to prevent manipulative trading on the Binance.US Platform.

240. One form of manipulative trading is called “wash trading.” In a wash trading scheme, a trader buys and sells the same asset between or among his or her own accounts in transactions lacking economic purpose. Wash trading is not arm’s length market activity and is not the result of market forces of supply and demand. Wash trading gives the artificial appearance of, among other things, increased trading volume, liquidity, and trading interest for the asset at issue. It may also artificially inflate the aggregate trading volume of the platform upon which the asset is being traded.

241. By the time Zhao and Binance created the Binance.US Platform, they understood the importance to investors in crypto assets transacting on crypto asset trading platforms of the platforms’ monitoring for and preventing manipulative trading (including wash trading), especially given the largely regulatory non-compliant nature of crypto asset trading platforms, the risks of manipulative conduct on such platforms, and the perceived importance of presenting accurate information to the public.

242. As Zhao confirmed in April 2019 when commenting on a ranking of crypto asset platforms by trading volume: “CREDIBILITY is the most important asset for any exchange! If an exchange fakes their volumes, would you trust them with your funds?”

243. But BAM Trading and BAM Management failed to implement controls to prevent manipulative trading on the Binance.US Platform that it falsely claimed to investors to have implemented, resulting in the exact “fake volumes” that Zhao decried in April 2019.