- CFTC filed charges against Binance and founder Changpeng Zhao on Monday.
- The regulator claims that the exchange, Zhao, and former CCO Lim violated trading and derivatives rules.
- The crypto market reacted with volatility losing as much as 2.9% of its value.
The largest cryptocurrency exchange in the world, Binance, and its founder Changpeng Zhao have been sued by the United States Commodities and Futures Trading Commission (CFTC) for allegedly violating future and derivatives trading laws.
The exchange’s former Chief Compliance Officer (CCO), Samuel Lim, has also been charged with aiding and abetting Binance’s violations.
Binance Willfully Evaded Federal Laws – CFTC
The US CFTC has accused Binance of willfully evading Federal law by running an unlicensed exchange for digital asset derivatives. The U.S. District Court for the Northern District of Illinois received the complaint from the CFTC on Monday, March 27. According to the regulator, Binance used a deliberate strategy of regulatory arbitrage to its business advantage.
The main charges concern Binance’s purported selling of commodity derivatives trades to U.S. citizens from 2019 until the present. The regulator emphasized in a press release that Binance’s compliance program has yet to be successful under the leadership of CEO Changpeng Zhao. Part of the agency’s statement read:
“The complaint charges that Binance Holdings Limited, … operates the Binance centralized digital asset trading platform along with numerous other corporate vehicles through an intentionally opaque common enterprise, with Zhao at the helm as …chief executive officer. The defendants allegedly chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”
The CFTC claims that Binance violated its regulatory requirements by failing to register correctly with the derivatives regulator. The agency has been investigating the operation of the cryptocurrency exchange since 2021. In February, Binance acknowledged that it would likely face regulatory action in the United States and was already working with regulators.
The CFTC also notes that it is illegal to facilitate derivatives transactions without first registering with the agency. The regulator stressed that CEO Changpeng Zhao is responsible for such compliance failures. CFTC stressed that Zhao was responsible for Binance’s violations based on his position in the company and “his long-running failure to act in good faith concerning Binance’s misconduct.”
Apart from CFTC, Binance is also being investigated by the Internal Revenue Service (IRS) and U.S. prosecutors, who are examining the exchange’s adherence to Anti-Money Laundering (AML) laws. In addition, the Securities and Exchange Commission (SEC) has been investigating whether Binance allowed U.S. traders to access unregistered securities.
Following the news, the entire crypto market lost 2.65% of its value, with Bitcoin (BTC) sinking below $27,000. When writing, BTC was going for $27,058, down 2.81% on the day.
Binance is the biggest cryptocurrency exchange, with over $8.5 billion daily trading volume. Binance’s in-house token, Binance Coin (BNB), traded at $308, trading down 5.20 % on the day at the time of writing.
