Add Binance to the list of crypto heavyweights facing serious legal issues. The Commodity Futures Trading Commission (CFTC) has accused Binance, founder Changpeng Zhao and former chief compliance officer Samuel Lim allegedly violated both the agency’s regulations and the Commodities Exchange Act. The company reportedly offered unregistered crypto derivatives, failed to ask users for mandatory identity verification, structured itself to avoid US regulations, and even told clients how to dodge its own compliance system for clients based in the USA.
Zhao directed much of the rule violation himself, according to the CFTC, and there are rumored chats and emails as evidence. Lim, who left Binance in 2022, is accused of knowingly contributing to the scheme. Among other things, he allegedly encouraged US users to hide transactions through a VPN and even create new accounts through front companies. The activity indicates that Binance’s compliance mechanisms “have been a sham,” CFTC chief counsel Gretchen Lowe said.
The Commission hopes to permanently ban Binance registration and trading. He also hopes to impose fines and force the company to return its earnings. There is no estimated financial penalty.
We’ve asked Binance for comment and will let you know if we have a response. The company has historically defended itself against the charges. Zhao’s brand is also facing a Securities and Exchange Commission (SEC) investigating its BNB tokenand a long-standing investigation looked into possible insider trading. Senator Elizabeth Warren recently sent Zhao a letter accusing him of creating a “hotbed of illegal financial activity” that allows scammers and scammers to face penalties.
The charges come in the wake of multiple scandals that have rocked the crypto industry. The fraud charges against FTX and its founder Sam Bankman-Fried are the most notable examplesbut there are also allegations and investigations targeting former CEO of Celsius, Coinbase And Terraform Laboratories, among others. Binance is the largest remaining crypto exchange, and a US ban could significantly affect the industry as customers are forced to switch to smaller outfits.
The CFTC is also marking ground with this decision. She and the SEC have argued that they should regulate crypto in the absence of laws outlining their roles. With these accusations, the CFTC is signaling that it wants to be the de facto regulator of crypto trading. Accommodation And Senate members can limit the commission’s authority if they pass legislation, but the agency is clearly not willing to wait to crack down.
Updated 3/27 2:45 PM ET: Binance tells Engadget that it finds the accusations “unexpected and disappointing”, as it says it has been collaborating with the CFTC for over two years. He also points to a significant investment in keeping Americans away from his platform during this period, including an increase in his compliance workforce (from 100 to 750). It does not directly address claims of helping customers circumvent these restrictions.