SEC opens investigation into trading companies linked to Binance

The United States Securities and Exchange Commission (SEC) has re-investigated Binance. According to Wall Street Journal (WSJ), the target is the relationship between the exchange and two trading companies linked to Changpeng “CZ” Zhao, founder of Binance.

According to the WSJ, the two companies are called Sigma Chain AG and Merit Peak Ltd. The SEC’s objective is to assess the nature of Zhao’s involvement and whether it was properly disclosed to clients.

An open investigation does not necessarily indicate wrongdoing. What the SEC wants is to investigate the relationships precisely to see if there is something wrong.

The process of the two companies is relatively ambiguous. While little is known about Merit Peak, Sigma Chain AG is located in Zug, Switzerland and had Zhao as president until September 2019. However, WSJ sources claim that Zhao effectively remained in control of the companies until 2021.

Link between trading companies and Binance

As the article says, Merit and Sigma act as market makers for Binance US. That is, they use their assets to make trades happen.

In this sense, market makers bring liquidity to exchanges by buying and selling assets and making a profit on each trade.

Apparently, this is not an area within the scope of the SEC, whose purpose is to regulate the securities market. But the municipality has already stated that some cryptocurrencies may fit that definition.

However, the SEC, under Gary Gensler, argued that given the growth of cryptocurrencies, its mandate should be broader. Gensler stated that the agency should oversee stablecoins, tokens backed by fiat currencies.

At the same time, Binance has suffered from scrutiny from various authorities, something that must have motivated the investigation. On the other hand, Binance US reiterates that it does not trade securities or offer investments.

Series of investigations

The Binance name has gained the spotlight from several US regulatory agencies. For example, the exchange was the subject of investigations by the Department of Justice and the IRS in 2021. Even the anti-drug department investigated the company.

The Futures and Commodities Trading Commission (CFTC) has also denounced Binance – in this case, for allegations of making it too easy for Americans to trade. In other words, the exchange would offer too many options and too little security, according to the CFTC.

Their platform has hundreds of listed cryptocurrencies and over 1,400 trading pairs. Binance also allows derivatives trading, but this function is not allowed in the US. That’s why the CFTC looked into possible insider trading on the exchange.