The CFTC is alleging Binance offered unregistered crypto derivatives products to US customers therefore evading compliance controls through the use of VPNs.
The U.S. Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao, alleging that the company knowingly offered unregistered cryptocurrency derivatives products in the U.S., which is against federal law.
The lawsuit was filed in the U.S. District Court for the Northern District of Illinois on Monday.
The suit alleges that Binance offered trades for cryptocurrencies including bitcoin, ether, litecoin, tether, and Binance USD, which are referred to as commodities. The suit also alleges that the company operated a derivatives trading operation in the U.S. and directed its employees to spoof their locations through the use of virtual private networks.
The CFTC is charging Binance with violating laws around offering futures transactions, “illegal off-exchange commodity options,” failing to register as a futures commissions merchant, designated contract market, or swap execution facility, poorly supervising its business, not implementing know-your-customer or anti-money laundering processes, and having a poor anti-evasion program.
Following the announcement of the lawsuit, the price of bitcoin fell around $1,000, while Binance’s exchange token BNB fell about 3%. Crypto-related stocks also fell after the suit was published.
The CFTC alleges that Binance created a system to hide its true reach and operations, and relied on a maze of corporate entities to operate the platform, which is designed to obscure the ownership, control, and location of the Binance platform. The filing adds that “Zhao answers to no one but himself.”
The suit also alleges that Binance directed customers in the U.S. to use a variety of methods to evade restrictions on U.S-based customers, including using virtual private networks to conceal their true location.
The company directed important customers such as trading firms to set up shell companies in places such as Jersey, the British Virgin Islands, and the Netherlands to avoid restrictions and was fully aware of the scale of its U.S. business.
CFTC Chief Counsel Gretchen Lowe called Binance’s actions “willful evasion of U.S. law,” pointing to internal chats and emails.
CZ has since replied to allegations via a blog post on Binance.com tuesday 28th March regarding trading he said the following
“Binance.com does not trade for profit or “manipulate” the market under any circumstances. Binance “trades” in a number of situations
We do need to convert our revenues in crypto from time-to-time to cover expenses in fiat or other crypto currencies. We have affiliates that provide liquidity for less liquid pairs. These affiliates are monitored specifically not to have large profits”
CZ went on to catergorically deny any wrong doing and said Binance and himself will cooperate fully with US regulators. Read the full blog post here
Binance Charges
In Summary The (CFTC) has sued Binance and its founder, Changpeng Zhao, alleging that the cryptocurrency exchange knowingly offered unregistered cryptocurrency derivatives products in the U.S The lawsuit also alleges that Binance operated a derivatives trading operation in the U.S. and directed its employees to spoof their locations through the use of virtual private networks. The lawsuit was filed in the U.S. District Court for the Northern District of Illinois on Monday.
[…] Binances CZ Changpeng Zhao has responded to the civil complaint filed by the U.S. Commodity Futures Trading Commission (CFTC) on March 28. […]