Updated Mar 27, 2023, 2:15pm EDT
businesscryptoNorth America

US watchdog sues Binance for violating trade and derivative rules

Binance and CEO
REUTERS/Benoit Tessier/File Photo

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The News

Binance, the world's largest crypto exchange, has been sued by the U.S. Commodity Futures Trading Commission (CFTC) on Monday for allegedly violating trading and derivatives rules. Bloomberg first reported on the lawsuit.

Binance CEO Changpeng Zhao was also sued directly.

CFTC alleges in the complaint that Binance allowed U.S. residents to buy and trade crypto derivatives but failed to register with the agency, which is required under federal law.

The complaint said that Binance and Zhao chose to "ignore" and "disregard" regulatory requirements and federal laws while "fostering Binance's U.S. customer base because it has been profitable for them to do so."

The CFTC is the latest agency to investigate Binance's business conduct, following probes by the Internal Revenue Service and Securities and Exchange Commission.

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Know More

The complaint presented evidence found in Binance's own documents, recounting how in 2020, the company made $63 million in fees from derivatives transactions with approximately 16% of accounts identified as being from the U.S. That figure increased to $1.14 billion in 2021.

Authorities also allege that Binance encouraged U.S. customers to use virtual private networks (VPNs) to obscure their location, allowed them to continue trading without needing proof of identity, and briefed certain U.S. customers to open Binance accounts under newly incorporated overseas shell companies to avoid compliance controls.

"For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance,"said CFTC Chairman Rostin Behnam in a statement. "This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law," Behnam said.

The announcement immediately shook the crypto market, with the stock of Coinbase, the only U.S. publicly-traded crypto exchange, falling more than 9%. Binance's exchange token BNB fell by nearly 5%.

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Step Back

Binance's market performance had surged following the collapse of former rival FTX, after which U.S. lawmakers began publicly questioning Binance's business practices.

The exchange's leaders have argued that they are not subject to U.S. jurisdiction because the company has no central headquarters. The complaint cited Zhao as previously saying that "Binance’s headquarters is wherever he is located at any point in time, reflecting a deliberate approach to attempt to avoid regulation."

A recent CNBC investigation also found that Binance apparently used similar tactics in China, where crypto is illegal, by encouraging mainland customers to bypass internet security regulations in order to trade.


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