Binance, the world’s largest cryptocurrency exchange, and its CEO Changpeng Zhao, are facing a lawsuit from the U.S. Commodity Futures Trading Commission (CTFC) for allegedly breaking trading and derivatives rules.
The commodities watchdog sued Binance and Zhao in a Chicago Federal Court for allegedly violating its rules on derivatives and trading.
Binance Benefited From US Customers Without Registering with CFTC
The agency said Binance and CZ wilfully ignored registration and compliance requirements under U.S. federal law, despite exploiting key U.S. commercial relationships to earn significant revenue.
The CFTC has full jurisdiction over derivatives transactions in the U.S. However, it cannot compel a spot trading platform to register with the CFTC.
The CFTC also alleged that Binance, Zhao, and Lim assisted U.S. customers in bypassing Binance’s own geographical restrictions through virtual private networks. It suggests that Binance relies on “a maze of corporate entities” to hide its ownership and organizational structure.
Samuel Lim, a member of Binance’s senior management, the CFTC argues, had allegedly conspired with anti-money laundering and Know-Your-Customer staff to allow criminals to use the platform.
The agency is asking the United States District Court for the Northern District of Illinois to prevent Zhao, Lim, and other Binance entities from violating trading laws in the future. They must also pay customers from whom they earned money by violating the Commodity Exchange Act.
Binance CEO Changpeng Zhao has dismissed the allegations as FUD.
U.S. senators have scrutinized Binance for purported lax KYC/AML procedures and for hiding its business units’ interrelationships.
CFTC Commissioner Fulfils Promise of Greater Enforcement
Earlier this year, CFTC Chairman Rostin Behnam promised more enforcement actions for crypto companies that don’t comply with its rules.
The agency has investigated Binance since at least 2021 over whether it did enough to prevent U.S. customers from trading crypto derivatives.
In the 2022 financial year alone, the agency demanded more than $2 billion in restitution and other civil monetary penalties.
However, at a hearing before the Senate Agricultural and Banking Committee on Dec. 1, 2022. Behnam advocated the additional necessity of regulation to protect consumers.
On the other hand, the chair of the CFTC’s sister agency, the U.S. Securities and Exchange Commission, has maintained that crypto assets pooled to generate returns from the efforts of others make them securities covered by existing U.S. laws. Its enforcement by regulation instead of a rules-based approach has frustrated many crypto advocates.
Recently, CFTC Commissioner Summer Mersinger called on Congress to compel the two agencies to draft crypto regulations jointly.
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