The Commodity Futures Trading Commission (CFTC) has initiated action against Binance Holdings Ltd., the world’s largest crypto exchange by trade volume, for alleged violations of U.S. trading and derivatives rules. The regulator also named Binance’s CEO Changpeng Zhao in the lawsuit, which claims the exchange has broken a number of federal regulations. The suit also includes Binance’s former chief compliance officer, Samuel Lim, for allegedly helping and promoting the violations.
CFTC Holds Binance Responsible for Unlawful Derivatives Trading; CEO Zhao Named in Lawsuit
The CFTC has filed a complaint in the U.S. District Court for the Northern District of Illinois against Binance, alleging the exchange has conducted illegal digital asset derivatives trading. The regulator claims that Binance has adopted a strategy of regulatory avoidance for its commercial benefit.
The CFTC alleges that Binance has been offering derivatives transactions to U.S. traders since 2019. According to the regulator, Binance’s compliance program has been ineffective under the leadership of CEO Changpeng Zhao. This lack of compliance has resulted in violations of the law, the regulator explained.
“The complaint charges that for much of the relevant period, Binance did not require its customers to provide any identity-verifying information before trading on the platform, despite the legal duty that entities like Binance functioning as futures commission merchants (FCMs) collect such information, and failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering,” the CFTC noted.
The CFTC emphasizes that facilitating derivatives transactions without registering with the regulator is illegal. The regulator stated that CEO Changpeng Zhao is accountable for such compliance failures.
Zhao is liable for Binance’s violations based on his control over Binance and his long-running failure to act in good faith concerning Binance’s misconduct.
The news caused the crypto markets to slump as the entire market lost 2.94% against the U.S. dollar. Bitcoin (BTC) sank below the $27,000 per unit range. The CFTC is seeking monetary penalties, permanent trading and registration bans, and disgorgement.
“Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors,” CFTC Chairman Rostin Behnam said. “I have been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market.”
“This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law,” Behnam concluded.
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