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(Kitco News) - Binance, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao (CZ) have been sued by the U.S. Commodity Futures Trading Commission (CFTC) for allegedly breaking trading and derivatives rules, according to a report from Bloomberg.
The lawsuit was filed on Monday in a federal court in Chicago, with the CFTC accusing Binance of neglecting its obligations by not properly registering with the regulator.
The CFTC has been investigating the exchange since 2021 on allegations that it has allowed U.S. residents to use the exchange to buy and sell crypto derivatives. Current laws require any entity offering such services to U.S. citizens to register with the CFTC.
“Beginning no later than July 2019 and continuing through the present, Binance, under Zhao’s direction… has solicited and accepted orders, accepted property to margin, and operated a facility for the trading of futures, options, swaps, and leveraged retail commodity transactions involving digital assets that are commodities including bitcoin (BTC), ether (ETH), and litecoin (LTC) for persons in the United States,” the court filing states.
“Since the launch of its platform in 2017, Binance has taken a calculated, phased approach to increase its United States presence despite publicly stating its purported intent to “block” or “restrict” customers located in the United States from accessing its platform,” the filing charges. “All the while, Binance, Zhao, and Lim, the platform’s former Chief Compliance Officer (“CCO”), have each known that Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under U.S. law.”
“Defendants have disregarded applicable federal laws while fostering Binance’s U.S. customer base because it has been profitable for them to do so,” the filing said. “Binance’s decision to prioritize commercial success over compliance with U.S. law has been, as Lim paraphrased Zhao’s position on the matter, a ‘biz decision.’”
The filing also alleges that Binance purposefully obscures the identities and locations of the entities operating on the trading platform. It states that the senior management team failed to properly supervise the exchange’s activities and “actively facilitated violations of U.S. law, including by assisting and instructing customers located in the United States to evade the compliance controls Binance purported to implement to prevent and detect violations of U.S. law.”
“Despite Binance’s solicitation of and reliance on customers located in the United States to generate revenue and provide liquidity for its various markets, Binance has never been registered with the CFTC in any capacity and has disregarded federal laws essential to the integrity and vitality of the U.S. financial markets,” the CFTC alleged.
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Through the lawsuit, the CFTC is looking to put a halt to Binance’s “unlawful acts and practices” and to compel their compliance with all applicable laws. “In addition, the CFTC seeks civil monetary penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, disgorgement, pre and post-judgment interest, and such other relief as the Court may deem necessary and appropriate,” the court filing states.
Binance has become a popular target by U.S. regulators in recent months, ever since the collapse of FTX in November, which included a brief discussion about the possibility of Binance buying FTX.
In February, the exchange announced that it would halt all U.S. dollar transfers via SWIFT after running into issues with its banking partners. And regulators in New York forced Paxos, the company responsible for minting the Binance USD (BUSD) stablecoin, to stop minting any new BUSD, saying that the move is an offering of an unregistered security.
