Crypto Exchange Binance and CEO Changpeng Zhao Face Lawsuit by US Regulator

Binance and its leader, Changpeng Zhao, are facing legal action in the United States from regulators in the commodities market. The lawsuit alleges that the defendants deliberately evaded US laws.

This action taken by the US is the most severe measure implemented so far against the biggest cryptocurrency exchange in the world.

The CFTC has taken legal action against Zhao and three companies operating the Binance platform in a federal court in Chicago. This was because of various violations of the Commodity Exchange Act and CFTC regulations. Additionally, Samuel Lim, who once served as Binance's chief compliance officer, was charged with aiding in the company's violations.

The allegation suggests that Binance has expanded its US operations even though they had announced their decision to prevent US users from entering the system.

The complaint filed contains accusations that Binance instructed its most significant customers in the US on bypassing its compliance regulations, even after declaring limitations in the country.

According to the CFTC complaint, those who are being accused have not followed the relevant federal laws in expanding Binance's US customers due to the potential financial gain. The CFTC's proposed penalties include imposing fines and disallowing them from participating in trading permanently.

According to Gretchen Lowe, who serves as the CFTC's head lawyer, Binance has prioritized their profits over abiding by the law. The accusation states that Binance has violated the law by providing commodity derivatives transactions to customers in the US since July 2019, which involves making a wager on the price of a cryptocurrency rather than directly purchasing it. This is happening despite Binance not being registered with the CFTC.

Lowe stated: "The defendants have been accused of intentionally avoiding US laws, which forms the basis of the commission's complaint against Binance. Evidence from their own communication via emails and chats shows that Binance's supposed compliance efforts were a pretense, and they repeatedly prioritized profits above adhering to regulations."

Howard Fischer, who is one of the partners at Moses & Singer, a law firm in New York, has stated that the recent CFTC action exemplifies how US regulators are currently working together to tackle issues concerning cryptocurrency exchanges. This comes after the Securities and Exchange Commission, which is the leading financial watchdog in the US, announced that it may take potential enforcement action against Coinbase.

According to him, it appears that American regulators are taking measures to close down or heavily limit the operations of the main cryptocurrency exchanges that are still active in the United States. This development comes in anticipation of the Securities and Exchange Commission's forthcoming enforcement actions against Coinbase.

As per the CFTC complaint, Binance has been conducting derivative trades for US clients since 2019, despite stating that it would cease all US activity on its main platform. Furthermore, the complaint alleges that Binance did not mandate customer identity verification prior to platform use and neglected to establish measures to stop money laundering and terrorist financing.

The report stated that Binance instructed their staff to use a messaging app with an automatic message deletion feature to stay in touch with customers in the USA and avoid controls. The app in question was Signal, and it has been reported that Zhao himself relied heavily on it for communication.

The accusation asserts that Zhao, the creator of Binance in 2017 and valued at approximately $27.9 billion based on Bloomberg's estimation, significantly contributed to the misconduct.

According to a statement from the CFTC, it is claimed that Zhao made all significant plans for Binance and was behind the covert scheme to direct Binance's high-status customers in the US to bypass the company's compliance standards. Additionally, Zhao supposedly told Binance employees to utilize applications that allowed for the automatic removal of incriminating evidence in all communications regarding their efforts to break the rules.

A representative from Binance expressed surprise and disappointment regarding the CFTC's actions. They stated that Binance had been cooperating with the CFTC for over two years and had invested heavily to ensure that their platform did not have any American users.

However, our plan is to carry on working together with regulators both in the United States and throughout the globe. Our objective is to safeguard our users and cooperate with regulators in order to establish an unambiguous and well-considered regulatory system.