CFTC Is Suing the Most popular Cryptocurrency Exchange
The Commodity Features Trading Commission (CTFC) has filed a lawsuit against Binance due to its involvement in paving the way for its US clients to dip their toes into illegal trading practices.
Crypto derivatives trading isn’t yet legal in the US, and although Binance is an international platform, it isn’t registered with US federal regulator, the CFTC. Therefore, the regulators filed a lawsuit against this crypto exchange, as it provided its platform for illegal trading purposes and encouraged the use of VPN technologies that would allow US customers to trade with crypto derivatives.
More specifically, the US federal regulator alleges that this crypto exchange platform is violating the US crypto and trading laws by secretly providing coaching services to “VIP” customers on finding a loophole in the US law and evading compliance controls set by the US government.
According to the official CFTC website, Binance is under fire because, despite the legal requirement of platforms such as Binance to require from their clients identity-verifying information before initiating trades on the platform, this crypto giant turned a blind eye to this law. As Binance qualifies as an FCM – Futures Commission Merchant – this US federal regulator sees Binance’s decision to evade the rules as an unacceptable malpractice that should be taken to court.
The user verification requirement exists to prevent and detect illegal practices such as money laundering and terrorist financing, making Binance’s moves highly questionable.
The official CFTC website also states that “Zhao (the founder of Binance crypto exchange) is liable for Binance’s violations based on his control over Binance and his long-running failure to act in good faith concerning Binance’s misconduct. According to the complaint, Zhao owned and controlled dozens of entities that operate the Binance platform as a common enterprise. Zhao is alleged to have been responsible for all major strategic decisions at Binance, including devising the secret plot to instruct U.S.-based VIP customers to evade Binance’s compliance controls and instructing Binance employees to ensure all communications about their control subversion took place over applications that facilitated the automatic destruction of evidence.”
In other words, the CFTC claims that this crypto exchange, which has a separate entity for the US operations, also known as Binance US, has managed to create a system that allows them to hide operations that have occurred within the exchange.
In the same press release, CFTC Chief Counsel Gretchen Lowe referred to Binance’s practices as a “willful invasion of the US law.”
The complaint, filed on March 27, charges Changpeng Zhao, the founder and CEO of Binance, and three separate entities operating the Binance platform with several violations. Samuel Lim, Binance’s former Chief compliance Officer, didn’t escape justice either. Instead, the CFTC also hinted that Lim was aiding and abetting Binance’s violations of US law.
Why is the former Binance employee involved in the lawsuit?
When speaking of Binance’s malpractices, the CFTC pointed to internal chats conducted by Binance employees showing that Lim allegedly directed an employee to tell US customers to hide their locations.
Binance’s response to the CFTC’s allegations is that the lawsuit was “unexpected and disappointing.”
The Lawsuit Against Binance is a Scandal of a Large Scale
After the words of a Binance lawsuit were spread, all hell broke loose in the crypto world. For starters, not only is the largest crypto exchange facing a lawsuit (and we still haven’t recovered from the FTX debacle), but it’s also facing a surge of withdrawals initiated by distrusting Binance customers.
The investors rushed to get their money out of Binance accounts, which all approximately accounted to $1.6 billion worth of crypto.
If that alone wasn’t that big of an issue, Bitcoin price plunged below $27,000 per coin after the CFTC filed a lawsuit against Binance. Luckily, the market quickly recovered, as Bitcoin is, at the time of writing, worth over $28,000 per coin.
