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The U.S. Securities and Exchange Commission on Monday sued Binance and its CEO, Changpeng Zhao, alleging the cryptocurrency company was effectively operating an illegal exchange and diverted investors' funds into a trading entity controlled by Zhao.

The lawsuit, filed Monday in federal court in Washington, D.C., claims Binance ran its trading operations without registering with the SEC, as required by law, in order to "evade the critical regulatory oversight" aimed at protecting investors and markets. 

Binance, the world's largest crypto-currency exchange, allegedly commingled and diverted customers' assets, steps that registered financial firms wouldn't be able to do, the agency claims. The SEC also charges that Zhao and Binance redirected "billions of U.S. dollars of customer funds" into an account controlled by Zhao.

"Defendants' purposeful efforts to evade U.S. regulatory oversight while simultaneously providing securities-related services to U.S. customers put the safety of billions of dollars of U.S. investor capital at risk and at Binance's and Zhao's mercy," the lawsuit claims.

The lawsuit also alleges Binance defrauded customers by claiming they had controls in place to monitor "manipulative trading."

In an emailed comment to CBS MoneyWatch, Binance called the SEC's actions "unjustified."

The lawsuit "comes after extensive cooperation and recent good-faith negotiations," Binance said . "We are disappointed that the SEC chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief. We now join a number of other crypto projects facing similarly misguided actions from the SEC and we will vigorously defend our business and the industry."

The charges against Binance echo some of the allegations against another cryptocurrency exchange, FTX Trading. In that case, FTX co-founder Sam Bankman-Fried was charged with violations of securities laws, with the SEC alleging that he commingled FTX customers' funds into a venture he controlled. In that case, Bankman-Fried allegedly used the customer funds to buy real estate and make investments and political purchases. 

Binance didn't specifically address the SEC's allegations of commingling and diverting customers' funds, but said it objected to the agency's claim that it was operating as an unregistered securities exchange.  

"Because of our size and global name recognition, Binance has found itself an easy target caught in the middle of a U.S. regulatory tug-of-war," the company said.

In:
• SEC
• Cryptocurrency