Binance may not be a household name, but it has a strong presence in the crypto world.
And now the company, founded by a billionaire former pinball player, is embroiled in a massive legal battle against Wall Street's top cop, the outcome of which could determine the future of the entire crypto industry.
This summer, the Securities and Exchange Commission filed more than a dozen complaints against Binance, the world's largest cryptocurrency exchange, and its founder and CEO Changpeng Zhao.
According to the SEC, Binance's CEO was accused of misleading investors and running the unregistered and therefore illegal exchange CZ, better known by its initials. He is accused of "organizing a scheme designed to circumvent US federal securities laws."
The underlying allegations, which Binance is vehemently disputing, are part of an aggressive push by the crypto industry since the FTX crash last year.
In recent months, the SEC has sued several other companies, including Coinbase, which runs another popular cryptocurrency exchange.
With each of these actions, the company is trying to put cryptocurrency on its heels. Gary Gensler has been calling for it since he became chairman of the SEC.
"Right now, we don't have enough investor protection in cryptocurrencies," he said at the 2021 Aspen Security Forum. "Honestly, it's like the Wild West at this point."
In recent years, the SEC has been concerned about how fast the crypto industry is growing. Today, there are thousands of digital currency and cryptocurrency companies offering all kinds of services, including banking, while operating in a gray area of regulation.
The Securities and Exchange Commission (SEC) plans to change this under Gensler. Enforcement actions against companies like Binance and Coinbase argue that most cryptocurrencies are securities (like stocks, not commodities) and therefore fall under the regulator's jurisdiction.
This statement goes against the very essence of cryptography. By design, it seems to operate outside the rules of traditional finance.
A series of SEC lawsuits against crypto companies could have serious implications for the industry. This means that virtual currencies and other digital assets such as stocks may be subject to regulation.
And perhaps nothing illustrates these interests better than the ongoing battle against Binance.
A general financial store
Binance has over 140 million users worldwide who use it to buy and sell cryptocurrencies, including Bitcoin.
But it's not just a trading platform like Nasdaq.
"It's very hard to overstate how important Binance is to the crypto ecosystem," said Yesha Yadav, a digital asset expert at Vanderbilt Law School.
Today it has a research division and a lending business. Binance offers a cryptocurrency debit card in some countries. And he sells risky assets like digital art and cryptocurrency derivatives.
Think of Binance as Amazon cryptocurrency. one stop shop for everything.
This is not the business model that exists in traditional finance, where there are many rules that protect investors from systemic risks and conflicts of interest.
The SEC filed complaints against Binance customers from companies associated with Binance Trading. The company also has its own cryptocurrency called Binance Coin or BNB.
"This company is causing a lot of headaches for regulators," says Yadav.
The origin of cryptocurrency
Many experts see the legal battle between the SEC and Binance as a long one. Gensler says his goal is to bring the crypto industry out of the shadows.
As a longtime regulator who chaired the Commodity Futures Trading Commission, which also filed a lawsuit against Binance, during the Obama administration, Gensler knows the world of cryptocurrencies well. He taught the digital asset course Blockchain and Money at the Massachusetts Institute of Technology before returning to government in 2021.
Under his leadership, the Securities and Exchange Commission (SEC) is proving it still has the authority, thanks to decades of securities laws, to oversee the fledgling industry. Satoshi Nakamoto's article proposing the creation of Bitcoin was published in 2008.
During Gensler's tenure, he has filed more than 100 lawsuits related to cryptocurrencies. And while Gensler is fighting on multiple fronts, he and the SEC will have to contend. Cryptocurrency companies plan to fight tooth and nail to avoid regulation by the agency.
Czech Republic, undercover missionary
Gensler's regulatory pressure is now directed against CZ, which founded Binance in 2017 in China. Since then, the company has moved several times. In 2021, China banned cryptocurrency mining and crypto trading. And today, Binance is proud to announce that it has no official headquarters anywhere.
The Securities and Exchange Commission (SEC) said Binance sits "at the top of an opaque network of corporate entities," and the web regulator said it was created by CZ, a prominent Canadian crypto company. He chairs business conferences around the world and seems to have fallen out with social media adversaries.
On X, formerly known as Twitter, CZ often accuses journalists of spreading “FUD” – fear, uncertainty and doubt – about cryptocurrencies.
To the true believers, CZ is a visionary and cryptic crusader, but to Gensler, he is a dangerous impostor.
After the SEC filed the suit, Gensler told Bloomberg TV that Binance customers don't know what CZ and his company are doing with their money behind the scenes.
"We know that Mr. Zhao controls everything," he said. "We know they misled investors about risk management and hid a lot from investors."
The SEC accused CZ and Binance of transferring their assets to other companies controlled by CZ and manipulating the broader cryptocurrency market.
From flipping the pyramids to Binance
Binance declined NPR's request for an interview with CZ, but spoke with hedge fund manager and former White House communications director Anthony Scaramucci in 2021, who asked CZ how he got started.
CZ was born in China and a few years later her family immigrated to British Columbia, Canada.
"When I was 15 years old, I was selling hamburgers at McDonald's," he recalls. "At that time I was still working at a gas station."
Cryptocurrency is the first chapter in the story of the deluded, a story that has convinced many aspiring investors that they too can become incredibly rich by buying digital currencies.
CZ studied at a college in Montreal, interned at a software company in Tokyo, and has continued to study ever since. He has lived in Asia, the Middle East and Europe, giving him a unique perspective on global finance.
"I've lived in different places, so I'm not wedded to a currency, a country, etc.," he told Scaramucci.
CZ's trajectory helps explain what makes cryptocurrencies so attractive to him. By design, the cryptoeconomy has no borders and is designed to work outside of traditional finance.
A poker game that changes lives
In 2013, CZ first heard about cryptocurrency while playing poker in Shanghai. Bobby Lee, then CEO of BTC China, one of the first cryptocurrency exchanges, advised CZ to invest 10% of his money in Bitcoin.
But CZ went bust. He sold everything, including his apartment, and woke up a few months later when the price of the digital currency plummeted.
"Everybody in my family was like, 'What?'" she recalls. "My mother wanted to hit me on the head. "You're a fool, baby."
But CZ persisted, and as Bitcoin began to grow in value and popularity, CZ saw an opportunity to create a new trading platform that would make it easier for people to access cryptocurrency.
At the Forbes conference in Singapore, a few months after the launch of Binance, CZ emphasized how much he believes in the cryptocurrency's longevity. He showed viewers a tattoo of his company's logo on his arm.
"There are people who are uncertain about the future of this industry," he said. "I'm pretty sure we're here for the long haul."
Binance has become a crypto giant. In 2021, CZ reported that $170 billion in transactions were made on the platform in one day.
The company's rise has not been without controversy, in fact there have been many. Binance has been accused of facilitating money laundering, and the company has been accused of having ties to China, which Binance disputes. A Reuters investigation concluded that between 2017 and 2021, Binance "processed at least $2.35 billion in transactions resulting from hacking, investment fraud and drug trafficking."
Binance under pressure
But the SEC lawsuit is the biggest problem for Binance. And today his future is in question.
The Securities and Exchange Commission (SEC) is asking the court to bar the company and CZ from doing business in the US because its market share has plummeted since the company filed suit.
Several European countries have told the company it is not welcome here, and the Department of Justice is investigating CZ and Binance, which have recently cut large numbers of jobs. Several directors also left the company recently.
Binance says it plans to challenge the SEC's allegations as "absurd." Meanwhile, CZ continues to insist that it is not completely opposed to cryptocurrency regulation.
"I'm not strictly libertarian," he told an audience in Singapore in 2021. "I am not an anarchist. I don't think human civilization is advanced enough to live in a world without rules."
But what are the rules?
This is the essence of this struggle.
Binance and other crypto companies have spent years trying to shape a new regulatory framework for them. According to them, many existing rules do not apply.
This case will help to find out if they are correct.
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