Exclusive: The story behind the Nigerian SEC’s recent circular on Binance

On June 9, the Securities and Exchange Commission (SEC), Nigeria, published a circular to warn the investing public against the crypto exchange Binance.

But there is a problem with the statement. The SEC referenced Binance Nigeria Limited (BNL). As Mariblock first reported, having spoken with relevant parties and conducting public searches, the global cryptocurrency exchange does not have a Nigerian entity, and BNL was only registered for arbitrage purposes.

More significantly, based on the events that preceded the circular, Mariblock believes the SEC, in fact, set out to address Binance, the global crypto exchange, instead of the non-operational Binance Nigeria Limited.

While Binance has sought to take advantage of the Nigerian SEC’s erroneous statement to play the victim, whose brand name is being used illegally, Mariblock can reveal a crucial detail. The circular from the SEC came just days after the regulatory body mediated a settlement between Changpeng Zhao’s Binance and certain Nigerian users. These users had filed complaints against the exchange after suffering losses of nearly $1 million, a direct result of what they called a glitch in the exchange’s setup for leveraged token trading.

On June 19, we contacted the SEC with the facts we possess, seeking clarification on its circular on Binance. These facts encompass the complaints lodged against the crypto exchange. We also asked if the regulator would re-issue the notice, given that BNL doesn’t have an apparent operation.

On June 26, after several follow-ups, the SEC replied with a vague statement that neither clarified the release nor answered our questions regarding the complaints it received from the Binance users.

“Please be informed that there is no need for any clarifications with respect to the subject matter because what the SEC intended was to alert the Nigerian public of the danger in investing in an illegal firm. Kindly note that the SEC is not going to re-issue another circular to this effect.”

The circular comes while Binance is embroiled in legal tangles elsewhere. The United States capital markets regulator sued the exchange on June 5, accusing it of committing 13 securities law violations. There are also ongoing investigations by the US Department of Justice and other regulators in Europe and Australia.

Playing the victim

Following the circular, the owners of BNL wrote to the SEC to seek clarification and correction on what they believe is an error by the Commission.

“Binance Nigeria Limited, as incorporated in Nigeria, is not in any way whatsoever affiliated with the global crypto exchange binance.com owned by Changpeng Zhao [CZ], which is obviously being intended to be referred to by SEC Nigeria in its aforementioned circular,” a letter received by the office of the SEC’s director general on June 13 reads.

It adds:

“We request that [… the] circular be amended to replace ‘Binance Nigeria Limited’ with the global crypto exchange ‘binance.com,’ operating through the website www.binance.com and soliciting Nigerian investors through its Nigerian dedicated weblink www.binance.com/en-NG.

“The said global crypto exchange binance.com is now justifying to the public that its operations have not been declared illegal by [the] SEC Nigeria but rather that of ‘Binance Nigeria Limited,’ which […] actually has no operations at all whatsoever currently.”

Editor’s note: The excerpts in this story have been shortened to exclude repetitions to focus on the most critical points.

Mariblock understands that the SEC, in response, advised BNL to issue a public disclaimer published in a national newspaper.

A part of the disclaimer, published in the Leadership newspaper on June 20, reads:

“[BNL] has never presented itself in any way as having affiliations with binance.com nor as authorized by binance.com to carry out cryptocurrency business transactions in Nigeria. Binance Nigeria Limited has never taken any benefits from binance.com, derived any remuneration from, or unlawfully appropriated the goodwill associated with binance.com in any material form.”

However, on June 16, while awaiting the publishing of its disclaimer, BNL received a cease and desist notice from CZ’s Binance in what appears to be an attempt to deflect.

Parts of the note, being shared publicly for the first time, read:

“Your unauthorized use of the Binance name in the company’s [BNL] name is a blatant attempt at passing off [… BNL] as operating Binance’s business and exploiting the goodwill and global reputation associated with Binance for your own benefit, and is deliberately misleading to the public (including regulatory authorities) as to [… BNL’s] purported affiliation with Binance.

“One key example of the false and misleading nature of your use of the Binance name in [BNL’s] name is illustrated in the statement released by the [SEC] on 9 June 2023, titled “Circular on the Activities of Binance Nigeria Limited” (the “Circular”). The public, including international media outlets, have read and understood the circular to refer to Binance and incorrectly imputed an affiliation of Binance with [BNL]. […] This incorrect public perception of an affiliation of Binance with [BNL] causes significant reputational damage to Binance due to your deliberately misleading use of the Binance name.”

In what appears to be a rewriting of the narrative in favor of his exchange, Binance CEO Zhao took to Twitter to tell the public about the cease and desist letter. “Binance have issued cease & desist notice to the scammer entity’ Binance Nigeria Limited’,” he wrote. “If you are using http://binance.com, you are not interacting with the scammer entity.”

It is significant that a company, already facing accusations of operating an “extensive web of deception,” has opted for deflection when confronted with a regulatory press release that references its brand name. As declared earlier, the press release followed the company being summoned by the same regulator over user complaints.

The complaints

Last October, Mariblock received a tip from certain Binance users, the subject of the SEC summons of the global crypto exchange. They shared details of how they collectively lost $994,931 trading Binance leveraged token (BLT) products on May 19, 2021, as part of what looked like a more extensive issue experienced by BLT traders.

A petition from the users’ lawyers to the CZ-owned exchange claims that Binance had “severally admitted to our client and to SiBAN’s [Stakeholders in Blockchain Technology Association of Nigeria] representatives that the loss of the investment is entirely the fault of Binance.”

However, a source close to the matter, who asked not to be identified because of the confidentiality of the discussions, told Mariblock that Binance did not admit any fault.

Still, posts relating to this issue are aplenty on Reddit, the online forum that many in the crypto industry use to interact with others. Swiss litigation finance company Liti Capital also spearheaded a lawsuit related to the event.

On May 25, 2021, a week after the loss, Binance settled the Nigerian users who contacted Mariblock $395,000, or roughly 40% of the $994,931 lost. A representative of SiBAN facilitated the settlement discussions.

However, the users wanted full refunds of the amount lost and decided to take legal action, following in the footsteps of the users that Liti Capital represented. The users told Mariblock they could not join the Liti Capital class action.

Editor’s note: Mariblock elected against writing a story on this matter last year, telling the users it may be easier to find a resolution away from public sights. In addition, companies and users having disagreements are hardly a matter for the press — unless in an apparent breach of agreement/terms.

Reporting to the SEC

After engaging Binance through their lawyers without success, the users filed a complaint to the SEC on October 18, 2022.

On November 4, 2022, the Nigerian Police Force unit of the SEC notified the users of an investigation on the report in a letter which reads:

“This unit has commenced investigation into a criminal complaint received from the Securities and Exchange Commission regarding the petition you submitted to the Director-General dated 18th October 2022 against Binance Holdings Limited.”

Mariblock understands that the discussions took months, with a settlement reached and concluded about a week before the SEC circular was published. The users declined to share details of the settlement, having signed a non-disclosure agreement.

Mariblock presented the facts in its possession to Binance, but the exchange declined to speak specifically to the questions asked. Instead, a spokesperson said:

“Yes, we have engaged with the SEC previously, as well as other regulatory bodies and policymakers. Binance is a pro-regulation organization committed to constantly engaging with government and policy stakeholders. We were surprised by the SEC circular, given our previous engagements with them. Nevertheless, we immediately reached out to the SEC to seek clarification and to correct any misunderstandings.

“We stand ready to engage with them and remain committed to working with them cooperatively to bring about all the economic benefits of crypto to Nigeria.”