Crypto giant Binance charged with violating US trading and derivatives laws (updated)
Add Binance to the list of crypto heavyweights facing serious legal trouble. The Commodity Futures Trading Commission (CFTC) has charged Binance, founder Changpeng Zhao and former chief compliance officer Samuel Lim for allegedly violating both the agency’s regulations and the Commodity Exchange Act. The company allegedly offered unregistered crypto derivatives, did not ask users for mandatory identity verification, structured itself to avoid US regulation and even told customers how to avoid its own compliance system for US-based customers.
Zhao directed much of the breach himself, the CFTC claims, and there are allegedly chats and emails as evidence. Lim, who left Binance in 2022, is accused of knowingly aiding and abetting the scheme. Among other things, he allegedly encouraged US users to mask transactions through a VPN and even create new accounts through shell companies. The activity indicates that Binance’s compliance mechanisms “have been a disgrace,” says CFTC Chief Counsel Gretchen Lowe.
The commission hopes to permanently ban Binance’s registration and trading. It also hopes to impose fines and make the firm disgorge its profits. There is no estimated financial penalty.
We’ve reached out to Binance for comment and will let you know if we hear back. The company has historically defended itself against accusations. Zhao’s brand is also facing an investigation by the Securities and Exchange Commission (SEC) regarding the BNB token, and a long-running investigation has looked into possible insider trading. Senator Elizabeth Warren recently sent Zhao a letter accusing him of creating a “hotbed of illicit economic activity” that enables crooks and sanctions evaders.
The accusations come in the wake of several scandals that rocked the crypto industry. The fraud charges against FTX and its founder Sam Bankman-Fried are the most notable examples, but there are also allegations and investigations targeting Celsius’ former CEO, Coinbase and Terraform Labs, among others. Binance is the largest crypto exchange left, and a US ban could significantly affect the industry as customers are forced to move to smaller outfits.
The CFTC is also staking out territory with this move. Both it and the SEC have argued that they should regulate crypto in the absence of laws detailing their roles. With these charges, the CFTC is signaling that it wants to be the de facto regulator of crypto trading. House and Senate members could limit the commission’s authority if they pass legislation, but the agency is clearly unwilling to wait before cracking down.
Updated 3/27 2:45 PM ET: Binance tells Engadget that it finds the charges “unexpected and disappointing,” as it says it has been cooperating with the CFTC for over two years. It also points to a major investment in keeping Americans off its platform over that time, including an increase in compliance staff (from 100 to 750). It does not directly address claims to help customers circumvent these restrictions.
