Binance is in trouble, read why

Today let’s try to understand the new cryptocurrency impact news the U.S. Commodity Futures Trading Commission (CFTC) has filed a civil lawsuit in the U.S. District Court for the Northern District of Illinois accusing Changpeng Zhao and three entities that operate the Binance platform of numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations. The lawsuit also accuses Samuel Lim, Binance’s former chief compliance officer, of complicity in Binance’s violations. The CFTC charges Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited with operating the Binance centralized digital asset trading platform, along with numerous other corporate vehicles, through a common enterprise of a diffuse character, with Zhao at the helm as Binance’s owner and CEO. The CFTC alleges that the defendants chose to knowingly disregard the applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage for their commercial benefit.

The CFTC seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations in its litigation against the defendants. CFTC Chairman Rostin Behnam stated that the CFTC will use all of its authority to find and stop misconduct in the volatile and risky digital asset market and that today’s action demonstrates that there is no venue, or purported lack of venue, that would prevent the CFTC from protecting U.S. investors. CFTC Senior Deputy Director and Chief Counsel of the Division of Enforcement Gretchen Lowe noted that the defendants’ alleged willful evasion of U.S. law is at the heart of the CFTC’s complaint against Binance.

The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and that Binance deliberately chose to put profits ahead of compliance with the law. Today’s enforcement action reflects that the CFTC will pursue digital asset platforms and individuals who actively circumvent and attempt to circumvent the CFTC’s regulatory requirements.

It is important to understand the context behind the complaint against Binance. Binance has reportedly been offering and executing commodity derivatives transactions to U.S. persons from July 2019 to the present. The complaint alleges that Binance’s compliance program has been ineffective and that the company has instructed its employees and customers to circumvent compliance controls to maximize corporate profits.

The complaint also accuses Binance of failing to require its customers to provide any information to verify their identity before trading on the platform, which is against the company’s legal obligations as a futures commission merchant (FCM). In addition, Binance allegedly failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering. Although Binance attempted to restrict U.S. customers from trading on its platform, it is alleged that the company instructed its high-value trading VIP customers on the best methods to circumvent compliance controls. The complaint also accuses Binance of acting as a designated contract marketplace or swap execution service without registering with the CFTC. In addition, the complaint accuses Binance of failing to diligently supervise its activities as an FCM. Among the numerous supervisory failures detailed in the complaint is Binance’s instruction to its employees to communicate with U.S.-based customers regarding the circumvention of controls through a messaging application that was configured to automatically delete written communications. Separately, the complaint also charges Binance, Zhao, and Lim with willful evasion of CEA requirements. The defendants allegedly conducted certain activities outside the U.S. designed to avoid CFTC regulation, such as intentionally structuring their entities and transactions to avoid registration requirements and instructing U.S. customers, as well as other customers, on how to evade Binance’s compliance controls. In summary, the complaint against Binance is very serious and the company faces numerous allegations of non-compliance with financial regulations in the U.S. Investors should be aware of the potential risks associated with using this platform, and it is important to closely follow developments in this case. As always, due diligence and careful research are essential when making financial decisions.

We will be vigilant in continuing to monitor this information that directly impacts the crypto asset market.