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What was CZ thinking? That was the question that came to me while reading the Securities and Exchange Commission’s 136-page complaint that dropped on Monday. What, I wondered, did Binance founder Changpeng Zhao think was going to happen when he set up a nominally arm’s-length U.S. subsidiary—and then had it flout nearly every compliance rule in the book? It could only be a matter of time until American regulators, who have been investigating Binance for years, caught on and came down hard. And that’s what happened.

As the SEC revealed, Zhao treated Binance.US as a “puppet”—as described by the subsidiary’s own former CEO—while instructing two of the platform’s market makers, which he secretly controlled, to engage in rampant wash trading to pump up its volume. Meanwhile, Binance sloshed money—some of it customer funds—between Binance.US, the market makers, and the parent company. At some point, one of the market makers blew $11 million on a yacht. You get the idea.

The optics of all this are horrendous, even if Binance—unlike FTX—didn’t lose any of its customers’ money. You can’t go around talking up your commitment to compliance and then carry on like you’re running some two-bit boiler room. Needless to say, it doesn’t help that the money quote from the complaint is Binance’s own chief compliance officer telling a colleague: “We are operating as a fking unlicensed securities exchange in the USA bro.”

Again, how did Zhao think this was going to end? U.S. regulators are slow, but they’re not stupid and, as the complaint reveals, are willing to put the screws to your staff and even scroll through obscure Reddit posts to build a case against you. While many of the other allegations in the SEC complaint are old news, and reflect the move-fast-and-break-things ethos of many startups, the elaborate effort to run a puppet U.S. operation—while surreptitiously directing the most deep-pocketed American customers to Binance’s offshore platform—is a very bad look. The company will pay for this dearly.

The SEC’s complaint is a giant black eye for Binance, but the company is not the only one that should be embarrassed by Monday’s developments. True to form, the SEC’s publicity-obsessed chair, Gary Gensler, is treating the Binance investigation as a chance to promote himself and to try and maximize his agency’s jurisdiction.

For starters, Binance’s PR chief claims that Gensler shared the complaint with the media before serving it on the company itself. Such antics happen in private litigation, but a government agency—whose job is impartial regulation—should not be engaging in such games. Likewise, the SEC’s decision to blast out the “bro” quote on its Twitter account felt like an unprofessional decision to spike the football.

Then there are the numerous references at the outset of the complaint to Binance’s failure to register as an exchange with the SEC. This echoes Gensler’s recent clucking of “all you have to do is come in”—even though he knows full well that this is basically impossible since the current legal regime for exchanges is an ill-fit for blockchain firms. Even though the SEC had Binance dead to rights over its Binance.US deceptions, and likely over some token sales, that wasn’t enough for Gensler. He still had to use the complaint as a vehicle to seek to expand his empire at the expense of other agencies. But as we know, that’s how he rolls.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

The SEC sued Coinbase for operating a broker, national securities exchange, and clearing agency without registering, and for offering unlicensed securities. (Fortune)

The SEC named a raft of popular tokens—including Solana, Cardano, and Polygon—as securities in its Binance suit, but did not name Ethereum. (Fortune)

The CFTC approved an application by exchange giant Cboe to offer margined futures contracts for Bitcoin and Ethereum. (Fortune)

Big institutional players and crypto whales appear to have bought the dip following the selloff that occurred after the Binance lawsuit. (The Block)

Crypto prices plunged after the Binance news, with Bitcoin down 6%, but appeared to have stabilized by Tuesday morning. (WSJ)