Cryptocurrencies, blockchain, NFT and new trends

CFTC sues Binance and its CEO ‘CZ’ for allegedly violating US laws

Exchanges • March 27, 2023, 11:49AM EDT

Quick Take

  • The CFTC sued Binance on Monday for unregistered trading activity in the U.S. 
  • The move comes a month after Paxos, a U.S.-based crypto service provider was told the SEC was investigating the joint stablecoin it managed with Binance. 

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Binance and its CEO Changpeng “CZ” Zhao are being sued by the Commodity Futures Trading Commission for allegedly violating federal laws and not registering the exchange in the U.S.   

The agency filed a complaint against Binance, the world’s largest crypto exchange, on Monday in a Chicago federal court.  Bloomberg News first reported the suit. 

Since 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 agency argued in the 74-page complaint, an illegal activity since the site has not registered to do business in the U.S. The complaint adds that Binance, Zhao and former Chief Compliance Officer Samuel Lim “have all chosen to ignore those requirements and undermined Binance’s ineffective compliance program by taking steps to help customers evade Binance’s access controls,” the agency said. 

Binance “earned $63 million in fees from derivatives transactions and approximately 16% of its accounts were held by customers Binance identified as being located in the United States,” in August of 2020, the CFTC says, citing Binance documents obtained by the agency. “By May 2021, Binance’s monthly revenue earned from derivatives transactions increased to $1.14 billion. 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.'”

Employees for the firm also told U.S. customers how to access the site through virtual private networks, despite the ostensible block on U.S. access due to the lack of registration, the CFTC alleges. This was despite Binance, Zhao and other executives knowing that soliciting customers in the U.S. without register to business in the country, as required under U.S. law, the CFTC said. 

In response to the news Zhao tweeted simply “4”, his code for reporting or “attacks” he does not agree with. 

Spokespeople for Binance did not immediately respond to requests for comment. 

The Securities and Exchange Commission, which sometimes makes concurrent enforcement filings with the CFTC, declined to comment as to whether their own enforcement action could be pending. 

The price of bitcoin immediately declined on the news, trading down 4% to $26,8871 at 10:39 a.m. EDT, but soon partially recovered to over $27,000 per coin. 

Binance.US parent never registered, LTC, BUSD named as commodities

The complaint lists Binance’s regional affiliates, including the operating company for Binance.US, BAM Trading, as “other relevant entities” and notes that BAM “has never been registered with the Commission in any capacity” to trade commodities in the U.S. 

The CFTC also names several digital assets traded on Binance as commodities, seemingly diverging from the SEC by naming Binance USD and Litecoin as commodities. The CFTC also named USDT and ether as commodities, but had previously taken that position.    Ether’s classification, in particular, has been a point of contention among state and federal regulators.  Securities and Exchange Commission Chair Gary Gensler has implied that ether is an unregistered security and found agreement with New York State Attorney General Letitia James when in a lawsuit against crypto exchange KuCoin, she named ether a security. CFTC Chair Rostin Behnam has previously asserted that ether is a commodity, and the agency agency has allowed ether derivatives to be offered; if it did not see ether as a commodity those would be barred. 

The complaint comes a month and a half after crypto service provider Paxos received notice of an investigation into its joint stablecoin offering with Binance and voluntarily ended its minting of the dollar-pegged token.


UPDATE: With additional details from the complaint and comment or requests for comment.