Money Rehab with Nicole Lapin - Binance Is Getting Sued. Here's How Crypto Will Be Affected.

Episode Date: June 6, 2023

The SEC is suing Binance, the world’s largest crypto exchange, and the company’s CEO Changpeng Zhao for 13 different securities violations. Nicole unpacks Binance's sketchy behavior, what outcomes the SEC is hoping for, and how crypto prices have been— and will continue to be— affected. For the Told Ya So moments: https://moneynewsnetwork.com/shop/crypto-bro-crop-hoodie/

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It's time for some money rehab. All right, let's take a moment to acknowledge just how quiet the crypto world has been lately. And thank God for that. We really needed a break because the last two big crypto headlines were bad news. FTX fell. Sam Bingman Freed was arrested. Celsius filed for bankruptcy. Terra USD went to zero.

Bad, bad, bad, and worse. But were we surprised by any of this? I mean, I wasn't. I hate to say I told you so to anyone except Crypto Bros. If we're talking Crypto Bros, I don't hate dunking on them. In my latest merch drop, I made a sweatshirt saying, told you so, Crypto Bro, and I'm literally wearing one right now. So yeah, I don't hate dunking on them. In my latest merch drop, I made a sweatshirt saying, told you so, crypto bro, and I'm literally wearing one right now. So yeah, I don't hate it. Anyway, after this domino effect of crypto madness, the Web3 waters got kind of still for a minute. Crypto even had a little boost during the banking crisis in March when SVB,

Signature Bank, and First Republic imploded. However, not all good things can last, especially when it comes to crypto, and the dark clouds are back on the horizon. Yesterday, the SEC announced it's suing Binance, the world's largest crypto exchange, and the company's CEO, Shengpen Zhao, also known just as CZ, with 13 counts of securities violations. The SEC is alleging that Binance and CZ intentionally lured U.S. customers to join its unregulated international exchange, propped up the price of crypto assets, co-mingled billions of investor funds with their own money, and sent those co-mingled funds to a European company controlled by CZ called Merit Peak Limited.

After the lawsuit was announced, SEC Chair Gary Gensler stated, quote, through 13 charges, we allege that Jiao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law, end quote. That is a pretty intense allegation to make. And the stakes here are high. The lawsuit is seeking three major outcomes. First, financial restitution from Binance. Second, blocking CZ from ever, ever, ever holding a leadership position in a company that's registered in the United States to issue securities.

And third, more guardrails to prevent U.S. citizens from using Binance's platform. Let's double click on that third point because it hits a little known fact about Binance. Despite it being the largest global exchange, you can't use Binance proper in the U.S. because Binance doesn't follow all regulations that are required to operate in the U.S. because Binance doesn't follow all regulations that are required to operate in the U.S. Instead of simply following U.S. regulations, Binance created a separate exchange called Binance.us, which has less capabilities than the international version of Binance, but doesn't support any non-regulated funny business. However, it's not impossible to access the international version of Binance if you're in the U.S.

You can use a VPN, which is a software that basically disguises your location from your computer, which allows users to get to Binance's unregulated international platform from anywhere. And that is the big pain point for U.S. regulators. The SEC says that Binance was encouraging tens of thousands of U.S.-based customers to evade regulation and get access to the international platform, which means that U.S.-based investors could take on more risk and get less protection. And this lawsuit filing has provided some evidence to suggest that Binance was doing just that. The filings published an intercepted message from an unnamed Binance exec that read, quote, "...on the surface, we cannot be seen to have U.S. users, but in reality, we should

get them through other creative means." End quote. A similar message from CZ himself was quoted in the filings. In 2019, the same year Binance.us launched, CZ apparently told leadership, we do need to let users know that they can change their KYC, think VPN here, on Binance.com and continue to use it. But the message needs to be finessed very carefully because whatever we send will be public. We cannot be held accountable for it. In other words,

Binance leadership has been quoted in different places saying essentially, hey guys, let's facilitate and encourage U.S. users to get around U.S. protections and then let's cover it up. Of course, Binance has not gotten the chance to defend itself yet in court. Other financial journalists have summarized that Binance is currently denying any foul play, but that's not quite how I'm reading between the lines here. For example, in a blog post published yesterday, Binance Coms said that the company had, quote, engaged in extensive good faith discussions to reach a negotiated settlement, end quote. Does that sound like denying an allegation to you?

To me, that just sounds like they tried to make a problem go away by throwing money at it. Reporters at CNBC also said that CZ denied any wrongdoing over Twitter, but what CZ really tweeted was, quote, we will issue a response once we see the complaint. Haven't seen it yet. End quote. Again, is that a declaration of innocence? Not really. To me, that reads, once I know how badly I've been caught, I'll decide what I can deny. Anyway, even if Binance denies any wrongdoing, it's hard to argue with the paper trail. The exchange says it does $65 billion in trading volume daily. Binance's revenue grew 10x over the last two years alone, and its revenue last

year was a cool $12 billion, with a big ol' B. That is really insane growth, and it seems unlikely to me that that hockey stick type growth could happen without US users on Binance's sketchy international platform. Let's tie a bow on this story, shall we? Because of the big footprint Binance has in the crypto world, the news of this lawsuit is severely impacting crypto prices. After the lawsuit was announced, the price of Bitcoin dropped below $26,000. That is the lowest price it's been since March. And let's put this in perspective. This is day one for Binance versus the SEC. Over the course of the lawsuit, there will be much more information discovered by both sides. So if nothing else, crypto investors should expect

this to be the start of a very volatile chapter. For today's tip, you can take straight to the bank. If you have assets in Binance, it wouldn't be such a bad idea to move it into a digital wallet outside of Binance, just in case. I'll be honest here, I'm getting some FTX flashbacks. The CEO of a crypto exchange allegedly using customers' deposits for another of their businesses? Doesn't that sound familiar to you? And a reminder, over 1 million investors lost money in FTX. If this lawsuit or even this news cycle ends up toppling Binance, you need to make sure that your assets are protected now. And if you want to send a not-so-subtle hint to your nearest and dearest crypto bro,

send them a told you so crypto bro sweatshirt linked in the show notes. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for

investing in yourself, which is the most important investment you can make.