The US Commodity Futures Trading Commission (CFTC) has announced a series of charges against leading cryptocurrency exchange Binance and its founder, Changpeng Zhao, commonly known as “CZ.” The legal action comes as part of the CFTC’s continued efforts to crack down on misconduct in the digital asset market.
According to the CFTC, Binance and three of its entities—Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited—have been accused of violating the Commodity Exchange Act (CEA) and CFTC regulations. The charges include intentionally circumventing US federal law and operating an illegal digital asset derivatives exchange.
The CFTC alleges that Binance has been offering and executing commodity derivatives trading to US customers since July 2019, despite failing to implement effective compliance programs. The regulator further accuses CZ of instructing Binance employees and customers to evade compliance controls in order to maximize company profits.
Even though Binance claimed to restrict US customers from trading on its platform, the CFTC argues that the exchange continued to advise customers, particularly those with commercial value to the company (US VIP customers), on the best methods to circumvent its compliance controls. Moreover, Binance is accused of facilitating derivatives transactions without registering with the CFTC as a designated contract market or swap execution facility.
In the lawsuit, the CFTC is seeking compensation from the defendants, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.
CFTC Chairman Rostin Behnam stated that the CFTC will continue to use all of its authority to identify and stop improper behavior in the digital asset market. He warned individuals in the digital asset world that the CFTC will not tolerate deliberate efforts to circumvent US law.
The CFTC’s charges also extend to Samuel Lim, Binance’s former Chief Compliance Officer, who served in that role from 2018 to 2022. Lim is accused of intentionally undermining Binance’s risk control rules and assisting or abetting the company in regulatory violations, such as instructing customers on how to use VPN connections to bypass Binance’s IP-based controls. The regulator alleges that Lim even advised customers to set up offshore shell companies to trade on Binance International, bypassing the exchange’s KYC mechanism.
As the owner and CEO of the Binance platform, CZ is held responsible for the alleged illegal conduct. He is accused of being responsible for all major strategic decisions, including devising schemes to instruct US VIP customers to evade Binance’s compliance controls, and implementing an automatic destruction mechanism for employee communications.
The legal action against Binance and its founder marks a significant development in the regulatory landscape for cryptocurrency exchanges and serves as a reminder of the increased scrutiny faced by digital asset businesses operating in the US