UPDATED: Binance, CZ Sued By CFTC For Breaking Trading, Derivatives Rules
It is currently being reported that the Commodity Futures Trading Commission, also known as the CFTC, has filed a lawsuit against Binance and its founder Changpeng Zhao, also known as CZ, as well as Samuel Lim. The lawsuit, filed in the federal courts in Chicago, allegedly relates to the firm breaking trading and derivatives rules.
The lawsuit alleges that much of Binance’s trading volume and profitability comes from the US, despite the company claiming since 2017 that that it has taken actions to block or restrict customers in the US from accessing the platform. The lawsuit outlines that “beginning no later than 2019 and continuing through the present, Binance .. has solicited and accepted orders, accepted property to margin, and operated a facility for the trading of futures, options, swap, and leveraged commodity transactions involving digital assets that are commodities including bitcoin (BTC), ether (ETH), and litecoin (LTC) for persons in the United States.”
The lawsuit further alleges that the company solicited retail customers and relied on personnel and vendors in the US, all while the defendants knew that such actions subjected Binance to registration and regulators requirements in the US, despite choosing to ignore such requirements. The lawsuit then states that defendants “undermined Binance’s ineffective compliance program by taking steps to help customers evade Binance’s access controls.”
Such actions, as per the CFTC, were conducted simply because they were profitable. The firms alleges that Binance’s documents for the month of August 2020 outline that $63 million in fees from derivatives were earned, while at the time 16% of accounts on the exchange were said to be based in the US. Months later, those monthly fees are stated to have grown to $1.16 billion in May 2021.
“Binance’s decision to prioritize commercial success over compliance with U.S. law has been, as Lim paraphrased Zhao’s position on the matter, a ‘biz decision.'”
The other issue at hand is that the exchange reportedly obscures the identifies and locations of the entities that operate the platform. CZ is said to stated several times that the firms HQ is “wherever he is located at any point in time,” which reflects “a deliberate approach to attempt to avoid regulation.” As per CZ in a June 2019 internal meeting, this is done to “keep countries clean,” in reference to potential violations of the law.
The CFTC is said to be bringing the lawsuit to “compel compliance” with the Commodity Exchange Act and CFTC Regulations that requires firms offering commodities to be registered with the exchange. The suit also explicitly highlights that such regulations “require the implementation of controls designed to prevent and detect money laundering and terrorism financing.”
At the same time, the CFTC is seeking civil monetary penalties and remedial relief, which is to include trading and registration bans, disgorgement, pre- and post- judgement interest, and any other relief the courts might deem be necessary.
Bitcoin plummets
Bitcoin has seen its value plummet 4.7% in the immediate aftermath of the news hitting the wire, falling to a low of $26,672, after trading as high as $28,047 on the day.
Information for this briefing was found via Bloomberg and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.
