Binance Accused of Trading and Derivatives Rule Violations in CFTC Lawsuit

Binance, the world’s largest cryptocurrency exchange, has found itself in legal trouble with the U.S. Commodity Futures Trading Commission (CFTC). The commission has filed a lawsuit in the U.S. District Court for the Northern District of Illinois, naming Binance CEO Changpeng Zhao and former chief compliance officer Samuel Lim in the charges.

According to the CFTC, Binance engaged in a calculated strategy of regulatory arbitrage, violating several trading and derivatives rules. The regulator claims that Binance offered commodity derivatives transactions to U.S. residents from 2019 until today, and that its compliance program has been ineffective under Changpeng Zhao’s direction.

The CFTC has accused Binance of failing to require customers to provide identity-verifying information before trading on the platform, despite the legal duty that entities like Binance functioning as futures commission merchants (FCMs) collect such information. Additionally, the regulator claims that Binance failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.

The CFTC notes that facilitating derivatives transactions without registering with the regulator is illegal. In this case, the CFTC believes that CEO Changpeng Zhao is responsible for Binance’s compliance failures.

In response, the CFTC is seeking civil monetary penalties, permanent trading and registration bans, and disgorgement. “Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors,” said CFTC Chairman Rostin Behnam in a statement.

Behnam further added, “For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law.”

Following the news, the entire crypto economy lost 2.94% against the U.S. dollar, with bitcoin (BTC) sinking below the $27,000 per unit range.