The CFTC is Suing Binance and CEO Changpeng Zhao
On March 27th, the Commodity Futures Trading Commission (CFTC) announced a lawsuit against Binance and CEO Changpeng "CZ" Zhao for “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.”
The lawsuit also names Binance's former Chief Compliance Officer Samuel Lim as a defendant in the complaint for "aiding and abetting Binance’s violations".
The CFTC alleges that Binance repeatedly prioritized profits over following the law.
The CFTC filed seven charges against Binance, which are:
- Execution of Futures Transactions on an Unregistered Board of Trade
- Illegal Off-Exchange Commodity Options
- Failure to Register as a Futures Commission Merchant
- Failure to Register as a Designated Contract Market or Swap Execution Facility
- Failure to Diligently Supervise
- Failure to Implement Customer Information Program, and Failure to Implement Know
- Your Customer and Anti-Money Laundering Procedures
The lawsuit claims that the Binance instructed employees to help customers bypass KYC and other compliance controls.
If the lawsuit is successful, the CFTC is seeking to hit Binance with "disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations".
Here is a direct link to the lawsuit filed by the CFTC against Binance and CZ: https://www.docdroid.net/60YAbCz/cftc-binance-pdf#page=1
“Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors. I have been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market. For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law. I applaud the diligent and dedicated work of the CFTC’s Enforcement team in bringing this action, and for their hard work in addressing illegal operations in the digital asset space.”
- Rostin Behnam, Chairman of the CFTC
CZ took to the company blog to respond to the CFTC complaint filed against Binance to dispute some of the claims made against them.
The CEO's blog post stated that the lawsuit contains "an incomplete recitation of facts" and he disagrees with the "characterization of many of the issues alleged in the complaint".
CZ claims that Binance has the most comprehensive compliance system in the crypto industry and that the crypto exchange will continue to "respect and collaborate with US and other regulators around the world".
"I observe these policies myself strictly. I also never participated in Binance Launchpad, Earn, Margin, or Futures. I know the best use of my time is to build a solid platform that services our users.
At Binance, we look for amicable solutions to all problems. We are collaborative with regulators and government agencies all around the world. While we are not perfect, we hold ourselves to a high standard, often higher than what existing regulations require. And above all, we believe in doing the right thing by our users at all times. In this journey towards freedom of money, we do not expect everything to be easy. We do not shy away from challenges."
- Changpeng "CZ" Zhao, CEO of Binance
Here is an interesting Twitter thread, by user @adamscochran, that provides an analysis of the lawsuit and how it looks like a strong case against Binance and CZ.
It appears that the CFTC has email and text messages directly from CZ that instructed heads of Binance to circumvent the compliance controls.
Adam Cochran claims that this lawsuit has the potential to "kill off Binance" and the best course of action for the crypto exchange is to settle with the CFTC before it is too late.
I am not sure I agree that Binance could be toppled by this lawsuit, but perhaps it could be badly wounded if the case against them is especially strong and the following punishments are severe.
All I can say is that it is odd but also not too surprising how, over the last few months, that the CFTC, SEC, and other regulatory agencies are filing tons of lawsuits and complaints against the crypto industry.
It seems like almost every prominent crypto company is now being sued at the same time, coincidentally.
I do find it quite rich that the regulatory agencies never thought to sue FTX before the epic collapse, that has made the crypto winter worse for all.
What are your thoughts on this news?
Do you think Binance should be worried about this lawsuit?
Hypothetically, if Binance did collapse as a result of this lawsuit, who would take the title as the world's largest cryptocurrency exchange?
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