Binance's CEO is being sued by a US regulator for "willful evasion" The U.S. Commodities Futures Trading Commission (CFTC) s...
Binance's CEO is being sued by a US regulator for "willful evasion"
The U.S. Commodities Futures Trading Commission (CFTC) sued Binance, the largest cryptocurrency exchange in the world, and its CEO and founder Changpeng Zhao on Monday for running a "illegal" exchange and a "sham" compliance program, according to the agency.
With regard to "willful evasion" of U.S. law, the CFTC filed a lawsuit against Binance, Zhao, and its former top compliance executive. This was done "while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit."
The regulator's case is part of a larger and more visible campaign against cryptocurrency businesses. U.S. prosecutors and civil investigators have been focusing on cryptocurrency companies for years because they make illegal offers and break laws meant to stop illegal conduct. Nonetheless, such governmental involvement has recently increased in volume.
According to the CFTC's complaint filed on Monday, Binance "offered and executed commodity derivatives transactions on behalf of U.S. persons from at least July 2019 to the present," in violation of U.S. laws.
The CFTC claimed, citing a variety of practices first disclosed by Reuters in a series of investigations into the exchange last year, that Binance's compliance program has been "ineffective" and the company, under Zhao's guidance, has instructed workers and users to bypass compliance safeguards.
Samuel Lim, the former chief compliance officer at Binance, was charged by the CFTC with "aiding and abetting" the company's crimes. Calls and mails from Reuters went unanswered by Lim.
Despite the lawsuit being "unexpected and disappointing," a representative for Binance, which dominates the global digital asset market, said the company will continue to "collaborate" with regulators.
According to the spokesman, Binance has made "substantial investments" to make sure that U.S. users are not allowed on its platform.
Binance management "knew they were breaking CFTC laws, acting deliberately to both keep the money flowing and evade compliance," according to CFTC Chairman Rostin Behnam, in a statement.
The CFTC is in charge of regulating the markets for Bitcoin and other commodities and derivatives. Companies like brokers who make it easier for US customers to trade these goods must register with the government.
In December, Reuters revealed that Binance had been under investigation by the US Justice Department since 2018 for alleged money-laundering and sanctions violations. According to Reuters, Binance has handled at least $10 billion in payments for criminals and businesses trying to avoid American sanctions.
The fourth-largest cryptocurrency in the world by market cap, BNB from Binance, fell about 4% in response to the news.
Zhao, a multibillionaire who was born in China and immigrated to Canada when he was 12 years old, has not yet responded specifically to the CFTC's accusations.
He made a reference to a previous post detailing his "Do's and Don'ts" for 2023 by writing "4" in a tweet on Monday afternoon. "Ignore FUD, fake news, assaults," the fourth item on the list, uses the abbreviation for "fear, uncertainty, and doubt," which is frequently used in the cryptocurrency community in reference to news that is viewed negatively.
Binance was established in Shanghai in 2017 and dominates the global cryptocurrency market. According to statistics provider CryptoCompare, its primary Binance.com exchange handled trades totaling roughly $23 trillion last year. Zhao stated last year that trading volumes would reach $34 trillion in 2021.
Binance has never disclosed the location of its primary exchange despite having a parent company domiciled in the Cayman Islands. The holding company and two other Binance units were charged by the CFTC.
The CFTC said that Binance "failed to execute fundamental compliance processes required to prevent and detect terrorist financing and money laundering" and that Binance did not require consumers to submit information authenticating their identities prior to trading.
The CFTC's complaint described Binance's efforts to keep American customers even after the business built a U.S. exchange in 2019 to serve American clients in accordance with U.S. regulations in collaboration with a supposedly independent American firm.
According to Reuters, Zhao actually controls this American company, BAM Trading, and Binance effectively manages it as a de facto subsidiary. According to the CFTC, Zhao "described Binance as a pirate ship and said that he aspired for Binance.US to be a naval boat" when he hired BAM's first CEO.
While publicly stating that it was prohibiting U.S. consumers from trading on its platform, Binance's worldwide business allegedly instructed its economically valuable U.S.-based "VIP customers" on how to get around its compliance measures, according to the CFTC.
According to the CFTC, Zhao withheld information about Binance's U.S. customer base from some senior managers. According to the statement, Zhao gave orders to Binance staff in October 2020 to enter "UNKWN" in place of "US" for several data fields in the company's internal database.
Although the exchange had not disclosed this conduct in its public terms of use or elsewhere, the CFTC claims that Binance traded on its own platform using 300 "house accounts" that were either directly or indirectly owned by Zhao. The CFTC claimed that Binance's "insider trading" policy did not apply to the home accounts.
In February, a senior executive from Binance told the Wall Street Journal that the business anticipated paying fines to end the U.S. probes.
The CFTC declared that it is pursuing financial penalties, the return of illegally obtained gains, and long-term trading and registration prohibitions.
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