The world’s largest crypto exchange by trading volume, Binance, and its CEO, Changpeng Zhao, are being sued by the U.S. Commodity Futures Trading Commission (CFTC) for allegedly violating trading and derivatives rules. The U.S. government agency announced on Monday.
Markets took a sharp dive in the wake of the CFTC’s action against Binance today.
CZ, Binance Face CFTC Lawsuit
The CFTC has launched an attack on the Binance exchange and CZ.
In the lawsuit filed in the U.S. District Court for the Northern District of Illinois on Monday, the regulator claimed that Binance and its CEO operated a derivatives trading facility in the United States since July 2019, allowing local customers to trade swaps, futures, and options on cryptocurrencies, including bitcoin (BTC), ether (ETH), and litecoin (LTC).
2/23
This is the case we’ve long heard rumored that Binance denied, and it is going straight for the jugular.
Points out specific action to broker US exposure to leveraged products despite access controls. pic.twitter.com/gcU56u7xmO
— Adam Cochran (adamscochran.eth) (@adamscochran) March 27, 2023
The CFTC further alleged that Binance made “calculated” attempts to expand its footprint in the U.S. despite publicly claiming it would restrict U.S. citizens from accessing its platform.
Binance, Zhao, and former Chief Compliance Officer Samuel Lim all reportedly “chose to ignore those requirements and undermined Binance’s ineffective compliance program by taking steps to help customers evade Binance’s access controls,” the agency added.
One of the ways that Binance allegedly undermined its compliance program was by having its employees help customers use virtual private networks to spoof their locations.
The suit alleged that Binance’s reluctance to reveal its headquarters indicates the company’s attempts to escape regulation.
“Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location of the Binance platform,” the complaint stated, adding that “Zhao answers to no one but himself.”
The filing also includes messages sent through the encrypted messaging app Signal, which were collected from CZ’s phone. It noted that the CEO himself directed Binance reps to use Signal to communicate with U.S.-based customers, underscoring their “willful evasion of U.S. law.”
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose — over and over — to place profits over following the law,” CFTC’s Chief Counsel Gretchen Lowe opined.
The CFTC requests the court to enjoin Binance from further infringements of the Commodity Exchange Act, civil monetary fines, trading and registration bans, disgorgement, and a jury trial.
Binance Getting Sued Drags Crypto
CZ responded to the lawsuit news by simply tweeting “4”, referring to a previous tweet where he said that would mean to ignore FUD and attacks.
Notably, the bitcoin price moved lower after the suit was filed. The leading cryptocurrency dropped by 3.18% to change hands at $26,963.35, while Binance’s native token, BNB traded 5.93% lower.
Ether is following a similar pattern: the world’s second-largest cryptocurrency is down nearly 3.08% in the past 24 hours, trading at $1,713.56.
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