The U.S. Commodity Futures and Trading Commission (CFTC) has filed a lawsuit against leading cryptocurrency exchange Binance and its co-founder and CEO, Changpeng Zhao, alleging the exchange evaded U.S. rules by soliciting users from the United States.
The lawsuit comes from one of the U.S.’s financial regulators, whose main enforcement ability is to seek orders to permanently expel entities from participating in U.S. derivatives markets, or trading in cryptocurrencies that fall under the commodities category.
In the lawsuit, filed in Chicago federal court, the CFTC pointed to both Bitcoin and Ether as commodities, and asked for a permanent ban for Zhao and his companies. It alleges there is a long-running pattern of undisclosed conflicts of interest and illegal activity, saying Zhao and Binance’s former Chief Compliance Officer, Samuel Lim, were aware of regulatory failings.
Binance has taken measures to ensure legal compliance in the US, including the launch of a subsidiary, Binance.US, which offers a limited range of cryptocurrencies to users in the country.
In a statement, Binance’s CEO Zhao said the CFTC’s complaint is “unexpected and disappointing,” and added that the exchange has been “working cooperatively with the CFTC for more than two years.”
In its legal action, the CFTC characterizes Binance's organizational framework as a convoluted network of corporate entities, all ultimately under the ownership and control of Zhao, and says it’s intended to conceal the exchange's true ownership and management. Gretchen Lowe, a senior CFTC official responsible for enforcement, described Binance's purported efforts towards regulatory compliance as “a sham.”
Zhao, the CFTC alleges, has ties to “approximately 300 separate Binance accounts” that have traded on the Binance platform with the goal of making a profit. Zhao responded that Binance.com “does not trade for profit” or manipulate the market, but rather converts revenues in crypto into fiat or other cryptocurrencies to cover expenses.
The CFTC's accusations against Binance did not include any claims of fraud, and despite the Justice Department's prolonged investigation into the exchange, no official action has been announced.
