SEC sues world’s largest crypto exchange

This is an audio transcript of the FT News Briefing podcast episode: ‘SEC sues world’s largest crypto exchange’

Sonja Hutson
Good morning from the Financial Times. Today is Tuesday, June 6th, and this is your FT News Briefing.

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US regulators are suing the world’s largest cryptocurrency exchange. Inflation weary Europeans could find hope in German butter. And global carmakers face an existential challenge in their biggest market.

Edward White
If they fail in China, that is a huge chunk of the global revenue that will disappear with no guarantee of it coming back.

Sonja Hutson
I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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The US Securities and Exchange Commission yesterday charged Binance with 13 violations. This comes a few months after another US financial watchdog sued the big crypto exchange. Here’s the FT’s Stefania Palma on the key charges against Binance and its CEO, Changpeng Zhao.

Stefania Palma
The SEC is accusing Binance essentially of operating an exchange, broker-dealers and clearing agencies without having registered them with the SEC. And in addition to that, the SEC is also accusing Binance and Zhao that they had control of clients’ assets, but this also allowed them to merge these assets or even divert them. And in one case, the SEC is accusing the defendants of actually moving billions of dollars to a crypto asset trading firm called Merit Peak Limited that is actually owned by Zhao.

Sonja Hutson
Binance says the SEC’s allegations are baseless.

Stefania Palma
They are basically saying that they disagree with the SEC’s allegations. Interestingly, they argue that they had been co-operating with the SEC over a long period of time, but that the SEC allegedly was rejecting attempts at engagements and went straight to courts in a way that surprised Binance. They ultimately are arguing as well that because of their size and the fact that they are such a recognisable name that Binance has become, as they have described it, an easy target.

Sonja Hutson
And the SEC is watching other crypto companies as well.

Stefania Palma
I think an important feature of the complaint is the fact that it actually lists several very popular digital tokens that they declare are securities, and this is, has been sort of a really sort of hot button issue. I think the fact that certain tokens have now been labelled as securities in this complaint could potentially raise concerns for other players that allow customers to trade those tokens on their platforms.

Sonja Hutson
That’s the FT’s US legal and enforcement correspondent Stefania Palma.

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Surging food prices have been a huge concern for eurozone consumers and policymakers. But people see cause for optimism in German butter prices. German butter producers and retailers negotiate prices more frequently than in other markets, so changes in production costs show up more quickly. And German butter has become cheaper because of falling costs for cattle feed and energy and lower consumption. One Danish butter executive sees this as an early indicator for other dairy and food products. Some economists believe soaring food prices could actually reverse by the end of this year.

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China is a vital market for car manufacturers, but global carmakers are running into a serious problem. China has shifted so rapidly from gas powered cars to electric vehicles that foreign carmakers are caught on the back foot. To learn more, I’m joined now by Ed White. He’s a China correspondent for the FT. So, Ed, what’s going on here?

Edward White
The foreign groups, including Volkswagen, appear to have slightly misdiagnosed what was happening. They didn’t see how quickly the Chinese consumers would go after these electric vehicles. They didn’t realise how quickly the Chinese companies would pick up the technology to the point now that many people see a lot of the technological aspects of these Chinese-made cars — infotainment, software and the driver experience — is sometimes superior. And so now a real problem for these foreign groups is that they’re actually now falling behind. So it’s a real, real headache for Volkswagen, for Toyota, for GM, for Ford, and really all big western car brands.

Sonja Hutson
Ed, how did Chinese companies pick up the technology so quickly and gain such an advantage on their home market?

Edward White
So this harks back about 10 years, even a little bit longer, to Xi Jinping and his top lieutenants deciding to put tens of billions of dollars into local manufacturing, targeting what they realised would be a crucial area for the Chinese economy and for technology self-sufficiency. And so they have been pouring money into not just the retail EV-end of the supply chain, but throughout the supply chain.

Sonja Hutson
What are the global carmakers doing in response? I mean, they must know they’re in a jam. Are they bailing on the Chinese market or doubling down?

Edward White
So Volkswagen has actually been doubling down. It has committed billions of dollars, a new EV-focused investment into China. It’s vowed to produce cars that are more attractive to Chinese consumers. It’s moving expertise, and crucially, decision making, into China. Now, by contrast, you take a group like Ford, which has also historically had a very, very successful business in China, they have actually announced that they’re reducing spending. I mean, I saw this as a really stunning concession by a company that was, you know, only a decade ago the sixth largest player in the market. And they’re deciding that actually they don’t want to pour money into a market where they don’t know if they’re going to win.

Sonja Hutson
Can you talk about some of the domestic Chinese electric car companies like BYD, for example, the ones that are really challenging traditional global car companies?

Edward White
I think clearly BYD has stolen a march in this market. So if you look at the sort of sales statistics for the last three or four months in China, BYD and what they call the new energy segment, four out of every 10 cars sold in China are made by BYD. And that’s not talking about traditional internal combustion or fuel vehicles. And so that’s a massive market share. There is also smaller groups, XPeng, NIO, Li Auto, Geely, and oh Geely is not too small, but a lot of other Chinese manufacturers that are doing very, very interesting things in this market. And I think, you know, people like Elon Musk have talked about these companies being the real companies that keep him up at night.

Sonja Hutson
Do you see these Chinese companies making big inroads outside the country?

Edward White
Short answer is yes, almost without anyone realising it. Last year, China overtook Germany as the second biggest auto exporter in the world. This year, it’s tracking ahead of Japan. And yet it sort of seems to be taking people by surprise. But in the same way that the Koreans and the Japanese have done things previously, if the Chinese cars seem to be better from a technology standpoint, better from a software standpoint and they cost half as much, then it seems to me that they’re bound to be quite successful.

Sonja Hutson
Ed White is a China correspondent for the FT.

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You can read more on all these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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