The US Commodity Futures Trading Commission is suing Binance, the world’s largest cryptocurrency exchange by trading volume, and its chief executive Changpeng Zhao, for allegedly breaching trading and derivatives laws.
The CFTC on Monday filed a civil enforcement action in the US district court for the Northern District of Illinois charging Mr Zhao and three entities that operate the Binance platform with breaches of the Commodity Exchange Act (CEA) and CFTC regulations.
The complaint also alleged Samuel Lim, Binance’s former chief compliance officer, aided and abetted the exchange's breaches.
The defendants allegedly chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit, the CFTC said in a statement.
The agency has sought monetary penalties and permanent trading and registration bans against the company.
“CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market,” its chairman Rostin Behnam said.
The CFTC complaint is “unexpected and disappointing”, Binance’s representative said in a statement to The National.
“We have been working collaboratively with the CFTC for more than two years … 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.”
Binance has offered and executed commodity derivatives transactions to and for the US from July 2019 through to the present, according to the complaint.
The company’s compliance programme has been ineffective and, at Mr Zhao’s direction, it has instructed its employees and customers to circumvent compliance controls to maximise corporate profits, it said.
The complaint alleged that Binance, Mr Zhao and Mr Lim wilfully evaded the requirements of the CEA.
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose — over and over — to place profits over following the law,” said Gretchen Lowe, CFTC’s enforcement division principal deputy director and chief counsel.
The CFTC is a civil government agency and it cannot bring criminal charges against firms or seek jail time for people, according to Bloomberg.
However, cases from the regulator can result in hefty fines and other penalties against companies and people.
Last week, the US Securities and Exchange Commission issued an official investor alert advising caution with crypto asset securities.
The regulator warned that businesses offering transactions involving crypto assets, including crypto asset securities, may not be complying with the US regulations. It said the risk of loss for investors remained “significant”.
The cryptocurrency sector went through a troublesome year in 2022, marred by company collapses and cyber crimes, dragging down the prices of digital assets and investor interest.
One of the latest and most notable incidents was the collapse of FTX, which filed for bankruptcy on November 11.
The downfall of the exchange once valued at $32 billion rocked the entire industry and its founder Sam Bankman-Fried is facing criminal charges in the US.
The FTX crash also came at a time when the collapse of major companies Celsius Network and Three Arrows Capital after massive losses was still fresh in investors' minds.
The collapse of the Luna cryptocurrency and its associated Terra stablecoin in May, as well as job losses, have added to the industry's woes.