US goes after Binance in latest crypto clash
The Commodities and Futures Trading Commission sued crypto exchange Binance and its CEO Changpeng Zhao for selling derivatives backed by digital assets to US clients despite not being registered to do so, the latest attempt by Washington to rein in cryptocurrency markets .
The lawsuit, filed in federal court in Chicago, states that since July 2019, Binance has solicited and accepted orders and operated a facility for trading products such as futures and options that derive their value from cryptocurrencies. Binance is the world’s largest cryptocurrency exchange. Binance has said it does not sell to customers in the US
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham, and Binance deliberately chose – over and over – to place profits over following the law,” said Gretchen Lowe, CFTC’s Division Director of Enforcement and Chief Counsel. a statement.
Samuel Lim, Binance’s Chief Compliance Officer, is also named in the suit for “intentional and substantial assistance” in these activities. Shortly after the lawsuit became public, Binance’s CEO tweeted the number “4” above from his account, which refers to an earlier one goal for 2023 he has pinned to the top of his profile, “Ignore FUD, fake news, attacks, etc.”
A spokeswoman for Binance said the lawsuit was “unexpected and disappointing,” and stated that Binance has been working “cooperatively with the CFTC for more than two years.” She said it has made significant investments to ensure “we don’t have US users active on our platform,” raised its compliance team to 750 from 100 and is spending $80 million to strengthen its compliance programs.
Cryptocurrencies bitcoin and ether are down more than 2% as of 1 p.m. ET, compared to the previous 24-hour period. The global market cap for all crypto assets fell 2.3% during this period.
This is the latest of many recent high-profile clashes between a US regulator and the larger crypto world.
The largest U.S. crypto exchange, Coinbase Global (COIN) said in a March 22 regulatory filing that it received a Wells notice from the Securities and Exchange Commission that SEC staff had made a “preliminary decision” to recommend an enforcement action for violations of federal securities. promises. Coinbase, which does not offer commodities or derivatives in the United States to retail customers, said in a blog post last week that it was “confident in the legality of our assets and services.”
The SEC has separately issued 11 enforcement actions since early January against crypto firms and individuals, including one last week that targeted crypto entrepreneur Justin Sun. Several claim that certain cryptocurrencies or crypto products are securities.
All of these legal battles could help determine how, and whether, cryptocurrencies are regulated in the United States. A key area of debate is whether certain digital currencies are commodities or securities and therefore fall under the CFTC’s and SEC’s oversight. The CFTC stated in its filing that bitcoin, ether and litecoin are all commodities.
The CFTC said Binance’s efforts to avoid US regulators began in 2017. “Since launching its platform in 2017, Binance has taken a calculated, phased approach to increasing its presence in the US despite publicly stating its alleged intention to ‘block’ or “restrict” “customers located in the United States,” the regulator said.
In August 2020, the CFTC said, according to its filing, that Binance documents showed the exchange earned $63 million in transaction fees while approximately 16% of accounts were owned by US customers. Binance actively instructed US customers how to bypass the company’s restrictions by using virtual private networks (VPNs) as well as allowing customers to skate and submit proof of identity or location, the lawsuit said.
For certain “VIP” customers as well as key employees who controlled aspects of Binance’s derivatives trading, Zhao instructed Lim to guide the company’s VIP team to open accounts under the names of shell companies to avoid compliance.
“Don’t directly tell the user to run, just tell them their account has been frozen and it was investigated by XXX. If the user is a big trader, or a smart one, he/she will get the hint,” Lim wrote to the team according to internal chat logs in the complaint accessed by the CFTC.
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