Regulatory trouble is nothing new for Binance, and on many occasions, in the past, it has managed to overcome or bypass such roadblocks and eventually
Regulatory trouble is nothing new for Binance, and on many occasions, in the past, it has managed to overcome or bypass such roadblocks and eventually work with regulators.
However, when it comes to the United States, the exchange has found itself in the cross-hairs of multiple agencies.
A number of United States financial regulators have ongoing investigations against the crypto exchange. Some of these investigations date back to 2018, and now, one of the primary derivatives market regulators in the U.S. has filed a lawsuit in conjunction with its investigation that started in early 2021.
The U.S. Commodities Futures Trading Commission filed a lawsuit against Binance along with its CEO, Changpeng Zhao, and former chief compliance officer Samuel Lim on March 28.
The lawsuit alleges that Binance violated U.S. derivatives laws by offering its derivative trading services to U.S. customers without registering with appropriate market regulators. The CFTC accused Binance of prioritizing commercial success over regulatory compliance.
The lawsuit also made headlines because the CFTC has not only levied charges against the exchange but also against Zhao and Lim. The U.S. regulator has also accused Binance and its CEO of seven violations of the Commodities Exchange Act and controlled foreign company rules.
David Waugh, managing editor of the Daily Economy at the American Institute for Economic Research, told Cointelegraph that the CFTC lawsuit isn’t surprising considering the U.S. government’s overarching approach toward cryptocurrency enterprises — regulators seem to be employing every conceivable measure to curb the industry’s expansion.
“Significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States. Moreover, considering Binance.US’s sizable share of U.S. Bitcoin trading volume, the potential closure of the exchange’s American operations could lead to a decline in domestic trading volume unless traders transition to alternative platforms.”
The CFTC has actively gone after large companies, having previously opened regulatory enforcement actions against Tether and Bitfinex, which resulted in major shifts in the crypto landscape. The lawsuit against Binance looks to be no different.
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The CFTC has demanded a ban on Binance, Zhao, Lim and all affiliates from trading on registered entities, holding any commodity interest, registering or exempting with CFTC or acting as a principal, officer or employee of a registered entity. It has also demanded that Binance pay back the trading profits, revenues, commissions and fees derived from U.S. customers, as well as pay civil penalties assessed by the court and stand a jury trial on this matter.
Binance’s fate in the U.S. looks uncertain at present
The CFTC lawsuit has amassed evidence, including internal chat records of Zhao with Binance’s executives. Some market pundits believe it could very well seal the fate of the global crypto exchange in the United States.
Mark Fidelman, the founder of SmartBlocks, told Cointelegraph that the lawsuit has the potential to undo years of progress made by Binance’s sister firm in the U.S., Binance.US, which the global exchange has claimed functions as an independent entity. Fidelman said, “Charges against Binance are stiff, and the penalties could be business-ending.”
In addition to the regulatory infractions, the lawsuit specifically mentions Binance.US trading subsidiaries Merit Peak as well. The CFTC alleged that Zhao directly controls Binance and all of its connected companies.
The lawsuit also specifically ties in Trust Wallet, Binance Labs (due to U.S. exposure) and many Binance employees with U.S. exposure, including exchange-employed community builders called “Binance Angels” as grounds for a U.S. filing.
The most daunting accusation could be that Binance had nearly 300 accounts directly or indirectly linked to Zhao that traded against customers.
CFTC’s lawsuits against crypto companies have been settled with hefty fines and orders to cease operations in the past. Terrence Yang, a Harvard Law JD and the managing director of Bitcoin-focused firm Swan Bitcoin, told Cointelegraph that it seems unlikely that Binance.US will continue to operate much longer, depending on what the CFTC proves in court.
“On the one hand, Binance.US offered fewer products than Binance and has customers who identify as U.S. and Binance.US recognizes as U.S. customers. On the other hand, if the CFTC can prove to a judge that Binance.US helped Binance siphon U.S. customers who wanted to do more exotic products and use VPNs to hide their U.S. identity, then Binance.US may not be viable going forward.”
Binance did not directly respond to Cointelegraph’s request for comment.
The firm did release a public response…
cointelegraph.com