Binance vs. SEC: Crypto industry debates ‘Tai Chi’ vs. ‘Operation Chokepoint 2.0’

The United States Securities and Exchange Commission (SEC) has filed charges against Binance, its U.S.-based exchange entity and its CEO, Changpeng “CZ” Zhao, for violating securities laws. 

On June 5, the SEC filed 13 charges against Binance in the U.S. District Court for the District of Columbia over allegations that the company misled investors and misused customer funds. The accusations of mishandling customers’ funds and violations of U.S. banking regulations were first flagged in a report published by Reuters in the last week of May. At the time, Binance had refuted all allegations, calling the report a list of conspiracy theories.

According to the regulator, Binance has been mixing “billions of dollars” in user assets and covertly moving them to a different firm under CZ’s control. The accusations included misleading investors by misrepresenting the effectiveness of the company’s mechanisms for identifying and preventing manipulative trading.

Regulators further alleged that Binance had not done enough to prevent American investors from using its unlicensed exchange. Some of the key allegations in the lawsuit include:

  • Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes.
  • Zhao and Binance exercise control of the platforms’ customers’ assets, permitting them to commingle customer assets.
  • BAM Trading (the entity controlling Binance.US) misled investors about non-existent trading controls over the Binance.US platform.
  • Binance and BAM Trading were operating unregistered national securities exchanges, broker-dealers and clearing agencies.
  • Binance and BAM Trading were involved in the sale of securities, including Binance’s own crypto assets; the exchange token, BNB (BNB); a stablecoin, Binance USD (BUSD); certain crypto-lending products; and a staking-as-a-service program.

The list of 13 charges against the crypto exchange by the SEC comes within months of another lawsuit filed by the U.S Commodity Futures Trading Commission (CFTC) in March, which invoked various reactions from the crypto community, with the most prominent being the divide over Binance’s approach — referred to as “Tai Chi” — and U.S. regulators alleged “Operation Chokepoint 2.0.”

The “Tai Chi” reference comes from a 2020 Forbes report alleging Binance had taken a series of steps to evade regulators in the U.S., citing a document labeling it the “Tai Chi entity.” Tai Chi is a Chinese term used to describe a method to avoid responsibility. At the time, Binance threatened to sue Forbes over the claims.

Operation Chokepoint 2.0 is the term used by Coin Metrics co-founder Nic Carter to refer to an alleged effort by U.S. lawmakers and regulators to stifle the growth of the crypto industry.

Both theories resurfaced on June 5 after the SEC lawsuit where Cardano founder Charles Hokinson fueled the “chokepoint 2.0” theory. Hoskinson claimed that the SEC’s next in a series of steps is “to implement chokepoint 2.0 in the United States. The end goal is an agenda-based CBDC partnered with a handful of massive banks and end-to-end control over every aspect of your financial life. “

Many on crypto Twitter who have been voicing their concerns against Binance’s regulatory troubles claimed that the “operation chokepoint 2.0” theory is nothing more than a conspiracy in the case of the Binance lawsuit as the exchange was clearly selling securities.

Related: Binance plans new round of layoffs amid increased regulatory scrutiny

Tai Chi found a reference in the SEC lawsuit itself which made many on crypto Twitter recall the 2020 report.

Many others in the crypto community believed that the lawsuit against Binance isn’t usual given the regulators seldom name executives and thus Binance might be looking at a massive settlement at best.

Others were quick to remind the public that the charges are against the U.S. arms of Biannce which handles a minute portion of the global Binance crypto exchange’s trading volumes.

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