According to Bloomberg, the U.S. Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Binance and CEO Changpeng Zhao “CZ” for illegal trading. The lawsuit was filed in the U.S. District Court for the Northern District of Illinois.
According to the CFTC, Binance was not properly registered with the derivatives regulator and thus failed to meet its regulatory obligations. The cryptocurrency exchange has been the focus of a CFTC investigation since 2021. The exchange acknowledged in February that it could face regulatory action in the United States and is already working with regulators.
In addition to the CFTC, Binance is also under investigation by the IRS and federal prosecutors who have reviewed the exchange’s compliance with anti-money laundering rules. Meanwhile, the SEC has been investigating whether Binance allowed U.S. traders to acquire unregistered securities. Binance is the largest cryptocurrency exchange with a daily trading volume of over $8.5 billion. It has plummeted since the announcement, falling from $27,781 at 13:45 UTC to $26,755 in 1 hour and 15 minutes.
The lawsuit says Binance trades in Bitcoin, Ether and Litecoin, People who have been in the U.S. since at least 2019, despite policies that block or restrict U.S. customers. The company and its executives knowingly violated U.S. law, the lawsuit says:
“All along, Binance, Zhao, and Lim, the platform’s former chief compliance officer (“CCO”), knew that Binance’s solicitation of clients located in the United States made Binance subject to registration and regulatory requirements under U.S. law.” According to the lawsuit, Binance concealed the location of its executive offices, as well as "the identity and location of the entities that operate the trading platform." The suit cites an internal Binance memo in which CZ said the policy was intended to "keep the country clean [of the violation]" by "not logging on to .com anywhere." This is the main reason why .com doesn't work anywhere. "
Binance has at least 60 employees in the U.S. “and that number continues to grow,” the CFTC said in the lawsuit. It also has a US trademark. Binance launched the Binance.US branch in 2019. Other charges brought by the CFTC include that Binance failed to register with the regulator and violated provisions of the Commodity Exchange Act and CFTC regulations, including lawfully enforcing anti-money laundering and know-your-customer (AML/KYC) controls.
In addition, defendants failed to adequately monitor the Company's activities and knowingly conducted activities outside the United States to circumvent U.S. commodity exchange laws and took other actions to circumvent regulation: “Zhao and others acting on Binance’s behalf used Signal with the auto-delete feature enabled for business communications even after Binance received the CFTC’s document request and Binance allegedly distributed document preservation notices to its employees.”
The suit alleges that Binance offers leverage to customers trading in the spot market and refers to the two types of products it offers as “futures” and as “perpetual contracts.” It also allegedly traded “on its own platform through approximately 300 ‘internal accounts’ owned directly or indirectly by Zhao,” as well as through accounts owned by entities owned or controlled by Zhao.
“While it is too early to express an opinion on the merits of the CFTC’s case against Binance, we remain supportive of principles-based regulation across the crypto industry.” The CFTC is pursuing seven counts of executing unregistered futures transactions, offering illegal commodity options, failing to register as a futures commission merchant, designating a contract market or swap execution agency, failing to diligently monitor or enforce AML/KYC measures, and evading law.
