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Cryptogambling / Binance Faces Legal Battle: Accused of Trading and Derivative Breach

Binance Faces Legal Battle: Accused of Trading and Derivative Breach

Publish Date: 29/03/2023

When it rains, it pours- as Binance, one of the world’s biggest cryptocurrency exchanges is slapped with a legal sanction.

The crypto giant and its CEO Changpeng “CZ” Zhao has been sued by the United States Commodity Futures Trading Commission (CFTC) for trading and derivatives violations.

The US class action lawsuit claims that Binance carried out Bitcoin (BTC) transactions, Ethereum (ETH), and also Litecoin (LTC) despite a policy of barring or barring U.S. clients, for anyone in the country since at least 2019. According to the lawsuit, the firm and its management deliberately broke US law.

Following this sanction, the CFTC asserts that the company failed to properly register with the derivatives body, and Binance violated its regulatory duties.

The regulatory body further asserts that Binance has been under investigation since 2021. Meanwhile, the exchange announced in February that it had already spoken to regulators and that it most likely will be subject to US jurisdiction.

In addition to this submission, the cryptocurrency company has also been investigated by the Internal revenue Service and Federal Prosecutors concerning issues bordering on compliance with anti-money laundering regulations.

On the other hand, the Securities and Exchange Commission (SEC) is looking into whether Binance gave investor access to unregistered securities.

changpeng zhao with a microphone

Binance CEO Changpeng “CZ” Zhao

What You Might Not Know

The lawsuit claims that Binance gave consumers who traded on the spot market leverage and referred to two product types it marketed as “futures” and “perpetual” for swaps.

The company allegedly also traded on its platform through around 300 ‘house accounts’ that are all directly or indirectly owned by Zhao, in addition to accounts owned by organizations Zhao owned or controlled. Although, Customers were not made aware of this activity by Binance.

Currently, the CFTC is slapping Binance and its management with seven counts for carrying out unregistered futures transactions, giving unlawful commodity options, not registering as a futures commission merchant, assigned contract market, or swap execution facility, failing to monitor carefully, failing to put AML/KYC procedures in place, and breaking the law.

How This Might Affect Binance

This suit is much bigger than that of the SEC, and this may cause a big shakedown in the crypto industry, which proves to be fatal for the crypto company.

While this lawsuit takes investors and traders by surprise, the CFTC has ruled that Binance and the CEO, CZ are not allowed to take part in any of the activities specified in this complaint, including trading on formally recognized exchanges, owning any commodities interests, or overseeing the trade of any digital assets.

Additionally, the CFTC is requiring Binance to pay civil fines for the violations as well as return trading gains, sales, salaries, commissions, loans, and fees acquired from Americans.

Final Note

Given that there is a widespread perception in the cryptocurrency community that the CFTC won’t arbitrarily pursue little players, the CFTC’s case against Binance is significant.

This was made clear in the Bitfinex case from 2018, which the cryptocurrency exchange resolved with a sizable fine to be paid in 2021.

While we haven’t heard the last of this, keep your fingers crossed for the latest break on the Binance news.

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