CFTC Sues Binance and Its CEO Zhao Over Alleged Evasion of Regulatory Law

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The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Binance and its CEO Changpeng Zhao over the alleged sale of unregistered derivatives to crypto investors in the United States. 

Details of the CFTC Lawsuit Against Binance

According to a Bloomberg report, the United State Commodity Futures Trading Commission (CFTC) has slammed Binance, the world’s leading cryptocurrency exchange by daily trading volume, and its founder, Chanpeng Zhao, for trading violations. 

The lawsuit was issued in the United State District Court for the Northern District of Illinois. As per details on the filed litigation, CFTC alleges Binance bypassed several transgressions, including offering off-exchange commodity futures transactions. 

CFTC asserts that Binance operates a facility that trades or processes swaps that are yet to be registered as the swap execution facility (SEF) or affiliated with the conventional contract market. 

In addition, the defendant failed to adequately scrutinize its platform activities, processed trading operations beyond the United States border to avoid being tracked by the Commodities Exchange Act (CEA), and engaged in other actions to evade regulations continuously.

The litigation cited that Binance has used connections with auto-delete functionality enabled to engage in business and trading operations. Binance also allegedly offered leverage to global customers trading the spot market known as futures and perpetuals. 

The suit stated that Changpeng Zhao, the founder of Binance, directly or indirectly traded on the platform through up to 300 owned house accounts which were never disclosed to customers. 

The Futures trading commission states that these violations were practiced as hidden operations by the Binance platform

Binance is facing seven counts for executing unregistered futures transactions offering illegal commodities, providing illegal commodities options, failure to register as a Futures Commission Merchant, failure to supervise diligently or implement anti-money-laundering (AML) and Know Your Customer (KYC) measures, Designated Contract Market or Swap Execution Facility, and law evasion, 

As detailed in the Cointelegraph report, Christopher Perkins, the CFTC Global Market Advisory Committee member, stated that although it is somewhat early to opine on the merit of the filed lawsuit slammed on Binance, the organization remains fully positive of its principles and regulations across the crypto industry in a bid to protect all investors. 

The U.S Futures watchdog implores that Binance must be held accountable for these accounts; otherwise, there will be continuous engagement in the alleged operations in the filed suit. 

Without commenting on the active suit, a Binance spokesperson has reportedly stated that the world’s largest crypto exchange in trading volume has engaged in several significant investments for the last couple of years to ensure investors based in the U.S. are not active on their platform. 

It was further stated that this investment includes building its compliance team from 100 to 750 people and over $80 million to create a tamper-proof KYC and other compliance tools and services. 

The investment has birthed fruits as anyone identified as a U.S. citizen, regardless of present region, is blocked. The exchange also blocks U.S. IP addresses, cell phone providers, and banks. 

Binance spokesperson expressed surprise and disappointment as the trading platform has collaborated with the Commodity Futures Trading Commission (CFTC) for over two years. 

Nonetheless, it was affirmed that Binance would continue collaborating with CFTC and other US-based and global regulators as it walks down the path of creating a seamless trading hub for crypto enthusiasts. 

Binance Regulatory Issues in 2023

The year 2023 has been challenging so far for Binance regarding regulatory compliances. In January, United States Senators launched investigations against the trading platform on money laundering and criminal activities. 

As expected, Binance denied the allegations and affirmed to remain an open platform trusted by crypto investors globally. 

The United States Securities and Exchange Commission (SEC) had previously stated via a bulletin that the crypto assets outside of Bitcoin should be regarded as “securities,” that is, negotiable financial instruments that hold a monetary value that companies and the ruling government can issue. 

However, SEC Chairman Gary Gensler reiterated in the previous announcement that investors in the crypto market are prone to risk as they engage in the speculative asset class. 

Now slammed with a lawsuit termed “colossal and capable of toppling the Binance empire” by crypto enthusiasts and financial experts, it remains to be seen how it plays out. 

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.