The surprise lawsuit from the Commodity Futures Trading Commission (CFTC) against crypto exchange Binance sent shock waves across the markets today. I
The surprise lawsuit from the Commodity Futures Trading Commission (CFTC) against crypto exchange Binance sent shock waves across the markets today.
In addition to allegations of market manipulation and a lack of compliance effort, the regulator has also accused the exchange of not cooperating with investigative subpoenas and obscuring the location of its executive offices. Binance has rejected many of the allegations.
However, the devil is in the details when it comes to the 74-page complaint. Here are a few interesting snippets you may have missed.
Tokens labeled as commodities
Contrary to assertions by the United States Securities and Exchange Commission chief Gary Gensler on crypto assets, the latest CFTC lawsuit has labeled Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Tether (USDT) and Binance USD (BUSD) as commodities.
Earlier this year, the SEC argued that BUSD is an “unregistered security” in its Wells notice against Paxos. Gensler on many occasions has also argued that virtually all crypto assets are securities, with the exception of Bitcoin.
BTC: commodity
ETH: commodity
LTC: commodity
USDT: commodity
BUSD: commodity– the CFTC pic.twitter.com/Y3qi6vDmTA
— scott➕ (@scott_lew_is) March 27, 2023
Sheila Warren, CEO of the Crypto Council for Innovation said the statement is a “powerful shot across the bow of the SEC” and could have significant implications for the industry and for which regulator will have ultimate authority.
Meanwhile, Coinbase Chief Legal Officer Paul Grewal criticized the lack of agreement between the two U.S. regulators, stating:
“A security can apparently also be a commodity, except when it’s not. And it depends on which regulator you ask, and when. If you’re confused, you are not alone. Is this really the best American law has to offer?”
CZ’s phone was accessed
Binance CEO Changpeng Zhao has been named as a defendant and has been repeatedly singled out throughout the complaint.
Interestingly, the CFTC stated it was been able to gather evidence by collecting Signal text chains and group chats from “Zhao’s telephone.” Many are now wondering how this was possible.
How do they have acces to CZ phone? pic.twitter.com/FWMeKVCGSZ
— Martin Krung (@martinkrung) March 27, 2023
“Zhao has communicated over Signal with the auto-delete functionality enabled with numerous Binance officers, employees, and agents for widely varying purposes,” said the CFTC.
Terrorist activity accusations
Another startling allegation from the commodities regulator accuses the firm’s employees of knowing that its platform had facilitated “illegal activities.”
“Internally, Binance officers, employees, and agents have acknowledged that the Binance platform has facilitated potentially illegal activities.”
It specifically referred to a February 2019 incident in which former compliance chief Samuel Lim received information “regarding HAMAS transactions.” According to the filing, Lim explained to a colleague that terrorists usually send “small sums” as “large sums constitute money laundering.”
One man at the top
According to the complaint, the CFTC has alleged Zhao owned and controlled dozens of entities that operate the Binance platform as a “common enterprise.”
It cited an example of the CEO personally approving minor office expenses and paying for company services such as Amazon Web Services with his own personal credit card.
VIP program perks
Meanwhile, a Binance “VIP” program with preferential rates and perks has also been scrutinized by the regulator.
In addition to allegedly encouraging customers to use virtual private networks (VPNs) to access the platform, the CFTC also alleged that part of the perks for VIP customers was that they were given “prompt notification” of any law enforcement inquiry about their account.
“Zhao wanted U.S. customers, including VIP customers, to transact on Binance because it was profitable for Binance to retain those customers,” it alleged.
Ignoring U.S. regulatory requirements
The CFTC also accused Binance of being aware of U.S. regulatory requirements but ignoring them and making “deliberate, strategic decisions to evade federal law.”
The filing goes back to internal messages between Binance executives in 2018 regarding its strategy for the U.S. exchange and complying with sanctions imposed by regulators for the global exchange.
Fines and injunctions
Towards the end of the document, the commodities regulator said it is seeking monetary penalties, disgorgement of any trading profits, salaries, commissions, loans, or fees gained from their purportedly wrongful actions, along with paying penalties to resolve…
cointelegraph.com