The U.S. Securities and Exchange Commission is looking into the connection between cryptocurrency exchange Binance US and two trading firms linked to Binance founder Changpeng "CZ" Zhao—Sigma Chain AG and Merit Peak Ltd—according to a report today from The Wall Street Journal.

Per the Journal's anonymous sources, the agency wants to know the nature of Zhao's involvement and whether the relationships were properly disclosed to customers. An open investigation does not necessarily indicate wrongdoing.

While little information about Merit Peak is publicly available, Sigma Chain AG is located in Zug, Switzerland, which has attracted crypto companies and organizations such as the Ethereum Foundation and Tezos. According to corporate filings, Zhao was president until September 2019. Its current president is Chen Guangying, who has been listed on some Binance corporate documents as executive director. The Journal's sources say Zhao remained effectively in control of Sigma Chain and Merit Peak as of last year. 

Both firms serve as market makers for Binance US, meaning they use their assets to make trades happen. A cryptocurrency exchange is only as good as its liquidity. If you want to buy $10,000 of Ethereum at the going rate, you need to have someone able to sell it to you. Market makers bring liquidity to exchanges, buying and selling assets and making a profit on every trade, kind of like a casino.


What's the SEC have to do with it? Everything or nothing, depending on whom you ask. The agency is charged with protecting consumers and oversight of exchanges engaged in spot trading of securities—financial assets that are bought with an expectation of profit derived from the efforts of a company or core team. Shares in companies are securities and, the SEC argues, so are some cryptocurrencies.

But Binance US says it doesn't trade securities. It might have a point. Indeed, it lists fewer than half as many coins and tokens as U.S.-based competitor Coinbase. Its 72 assets even put it three behind Gemini, which has taken great pains to engage with regulators and stay above board.

However, the SEC, under Chairman Gary Gensler, has argued that the agency should have a broader remit. Gensler last year claimed the agency should have oversight of stablecoins, fiat-pegged tokens that serve as the lifeblood of the crypto ecosystem.


Binance's name came up a lot last year in relation to U.S. government agencies. It was the subject of a joint probe by the Department of Justice and Internal Revenue Service in 2021. 

It also has been investigated by the Commodity Futures Trading Commission for allegations that it made it too easy for Americans to use the platform. The main exchange has hundreds of listings and over 1,400 trading pairs. Unlike its US affiliate, it also allows derivatives trading, meaning people can speculate on the future price of assets. It is not authorized to offer these trades stateside. The CFTC later looked at potential insider trading at the exchange.

The US affiliate has fielded fewer investigations, though the SEC subpoenaed the exchange in 2020 for information about how it interacts with the global exchange, according to the Journal.

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