Binance Slapped with Violating Trading & Derivatives Laws

Binance joins the list of crypto exchanges grappling with huge legal issues. The Commodity Futures Trading Commission (CFTC) has accused Binance's founder, Changpeng Zhao, and its former compliance chief, Samuel Lim, of violating both the Commodity Exchange Act and the agency's regulations. The allegations include offering unregistered cryptocurrency derivatives, neglecting to request mandatory identity verification from users, structuring its operations to evade US regulations, and even advising customers on how to bypass the company's own compliance system designed for US-based clients.

According to the CFTC, Changpeng Zhao played a significant role in breaking the rules, and there are purported chat and email records to substantiate this claim. Samuel Lim, who departed Binance in 2022, is accused of unlawful conduct by advising American users to conceal their trades using a VPN and establishing new accounts via shell companies. The CFTC's chief counsel, Gretchen Lowe, suggests that these activities demonstrate that Binance's compliance systems were "a sham". The Commission is looking for a permanent ban on Binance's trading and registration, as well as imposing fines and requiring the company to disgorge any profits earned.

Binance's response to the allegations was that they were "unexpected and disappointing." They stated that they have been working with the CFTC for more than two years and have invested significantly in preventing American users from accessing their platform during that time, including increasing their compliance team's size. However, they did not specifically address the accusations of assisting customers in circumventing those measures.

Binance's charges are the latest addition to the drama unfolding in the crypto industry. Other examples include the fraud charges brought against FTX and its founder, Sam Bankman-Fried, as well as investigations into Celsius' former CEO, Alex Mashinsky. Binance is presently the largest crypto exchange. If it were to face a US ban, it could have a significant impact on the industry and customers may have to move to smaller and less dependable exchanges.

This move by the CFTC looks to be a way to leverage the agency as the regulator of the cryptocurrency industry. In the absence of specific laws outlining their roles, both the SEC and CFTC have contended that they should regulate crypto. By levying charges against Binance, the CFTC is sending a message that it intends to be the primary regulator of cryptocurrency trading. While House and Senate members may restrict the Commission's power through legislation, the agency appears to be taking immediate action without waiting for congress to catch up.