Binance founder and CEO Changpeng Zhao has been sued by the US Commodity Futures Trading Commission after the crypto firm was accused of breaching trading rules.
In a court filing in Chicago the Commission said Binance had failed to properly register with the regulator, a condition of allowing US customers to trade certain crypto assets such as derivatives.
The Commission said: “Since the launch of its platform in 2017, Binance has taken a calculated, phased approach to increase its United States presence despite publicly stating its purported intent to “block” or “restrict” customers located in the United States from accessing its platform.
“All the while, Binance, Zhao, and Lim, the platform’s former Chief Compliance Officer have each known that Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under U.S. law.
“But Binance, Zhao, and Lim have all chosen to ignore those requirements and undermined Binance’s ineffective compliance program by taking steps to help customers evade Binance’s access controls.”
The regulator added: “Binance purposefully obscures the identities and locations of the entities operating the trading platform. Zhao has stated that Binance’s headquarters is wherever he is located at any point in time, reflecting a deliberate approach to attempt to avoid regulation.”
“Zhao, Lim, and other members of Binance’s senior management have failed to properly supervise Binance’s activities and, indeed, have actively facilitated violations of U.S. law, including by assisting and instructing customers located in the United States to evade the compliance controls Binance purported to implement.”
It comes as crypto firms including Binance face increasing scrutiny by regulators over their operations and procedures. Last week, Brian Armstrong, the billionaire founder of crypto exchange Coinbase, lost around half a billion dollars from his wealth after the firm revealed the US markets regulator was mulling taking enforcement action against it over possible security law violations. Coinbase shares sunk 14% to $66.
The UK’s Financial Conduct Authority has warned that “due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without [its] prior written consent.”
The FCA added: “While we don’t regulate cryptoassets like Bitcoin or Ether, we do regulate certain cryptoasset derivatives. A firm must be authorised by us to advertise or sell these products in the UK.”
A Binance spokesperson said: “This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the US and around the world.
“The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
