BAMboozled: How BAM Trading Deceived Binance.US Users

FACTS

VI. BAM TRADING AND BAM MANAGEMENT ENGAGED IN ACTS AND PRACTICES THAT OPERATED AS A FRAUD AND DECEIT UPON, AND MADE FALSE AND MISLEADING STATEMENTS TO, INVESTORS.

E. BAM Trading’s and BAM Management’s False and Misleading Statements and Deceptive Acts and Practices Were Material.

277. BAM Trading’s and BAM Management’s statements about trade surveillance and trading volumes were material to investors trading in crypto assets securities on the Binance.US Platform and to Equity Investors. When deciding whether to trade in certain crypto assets on the Binance.US Platform or to invest in BAM Management, a reasonable investor would consider it important to know that BAM Management and BAM Trading were not, in fact, taking reasonable steps to surveil and prohibit manipulative trading on the Binance.US Platform, or ensuring that the platform’s trading volume reflected real market demand based on arm’s length transactions operating under legitimate market principles.

278. Volume is important for investors in crypto asset securities in evaluating prices (including anticipated price movement), market activity (including demand and available liquidity), and market efficiency. As Zhao recognized, a successful crypto asset trading platform depends on its customers believing the trading and reported liquidity are not tainted by fraud.

279. This information was also material to Equity Investors because the Binance.US Platform’s trading volume and corresponding revenue from transaction fees served as an important metric for the Equity Investors to assess BAM Management’s profitability and market share, and as an indication that customers were actually engaged with the platform. And given the active regulatory scrutiny of businesses involving crypto assets in the United States, Equity Investors would and did consider it important to know that they were investing in a compliant crypto asset platform to reduce the regulatory risk to the business and its profitability.

280. Further, investors trading on the Binance.US Platform and investors purchasing equity in BAM Management would have wanted to know that the platform’s primary market maker—owned and controlled by Zhao—was engaged in a pattern of wash trading that would benefit BAM Trading, BAM Management, Binance, and Zhao, all at the expense of regular investors trading on the platform.

281. As a result of these transactions, practices, and course of business that operated as a fraud or deceit upon purchasers of securities, and of their numerous material misstatements and omissions, BAM Trading and BAM Management obtained substantial revenue from the transaction fees that crypto asset investors paid for trading on the Binance.US Platform and the approximately $200 million that Equity Investors invested in BAM Management.