US regulators have filed a lawsuit against cryptocurrency exchange Binance alleging a string of violations including the misuse of investor funds.

Cryptocurrencies and shares in crypto and blockchain-related companies tumbled after the Securities and Exchange Commission (SEC) revealed 13 charges against the world’s largest exchange and its founder Changpeng Zhao.

The watchdog claimed they artificially inflated trading volumes and diverted customer funds, and also failed to restrict US customers from its platform and misled investors about market surveillance controls.

Its lawsuit further accused them of secretly controlling customers’ assets, allowing them to mingle and divert investor funds “as they please.”

Binance responded by saying it would “defend our platform vigorously”.

It added that, in its view, the SEC’s powers were limited because it was not a US exchange.

The sell-off in values was predictable given historic volatility for prices in times of trouble.

Bitcoin, the world’s biggest cryptocurrency was down 5.3% – falling to its lowest level since mid-March.

Binance’s cryptocurrency fell 9.4%.

Shares of rival crypto exchange Coinbase Global were down 11.6%.

In March, Binance and Zhao were sued by the US Commodity Futures Trading Commission for operating what the regulator said was an “illegal” exchange and a “sham” compliance program.

The charges against Binance have dented a rally for crypto values following a torrid 2022.

The collapse in November last year of FTX and the subsequent arrest of its founder, Sam Bankman-Fried, raised the focus of regulators on the sector.

Coinbase was earlier this year sent a ‘Wells Notice’ by the SEC which is usually an indicator of looming legal action.