 "Changpeng Zhao, CEO, Binance Holdings Ltd")
By Allyson Versprille, Lydia Beyoud, Tom Schoenberg and Ava Benny-Morrison
The US took its most forceful move yet on Monday to crack down on crypto exchange Binance Holdings Ltd. and its chief executive officer Changpeng Zhao.
The Commodity Futures Trading Commission alleged in federal court in Chicago that Binance and its CEO, who is known as CZ, routinely broke American derivatives rules as the the firm grew to be the world’s largest trading platform. Binance should have registered with the agency years ago and continues to violate the CFTC’s rules, according to the regulator.
Representatives for Binance and Zhao didn’t respond to requests for comment.
In addition to suing CZ and several Binance entities, the CFTC also alleged that Samuel Lim, Binance’s former chief compliance officer, broke its rules.
In addition to suing CZ and several Binance entities, the CFTC also alleged that Samuel Lim, Binance’s former chief compliance officer, broke its rules.
“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,” Gretchen Lowe, chief counsel in the CFTC’s Enforcement Division, said in a statement.
The agency said that Zhao, Lim, other senior managers failed to properly supervise Binance’s activities and took steps to violate US laws, including instructing American customers to use virtual private networks, or VPNs, to obscure their location and directing “VIP customers” with US ties — often institutional market participants — to open Binance accounts under the name of shell companies.
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In its complaint, the CFTC also said Binance’s own documents for the month of August 2020 showed that the platform earned $63 million in fees from derivatives transactions, and that about 16% of its accounts were identified as being held by US customers.
Documents
The CFTC alleged that the company intentionally destroyed documents. At the same time, Binance makes frequent use of the encrypted messaging app Signal to communicate with US customers, at Zhao’s instruction, the agency said.
Since at least 2021, the CFTC has been probing Binance over whether it failed to keep US residents from buying and selling crypto derivatives. CFTC rules generally require platforms to register with the agency if they let Americans trade those products.
The regulator is one of several US bodies that have been investigating Binance’s activities. The Internal Revenue Service, as well as federal prosecutors, have been examining Binance’s compliance with anti-money laundering obligations, Bloomberg News has reported. The Securities and Exchange Commission has been scrutinizing whether the exchange has supported the trading of unregistered securities.
The regulator is one of several US bodies that have been investigating Binance’s activities. The Internal Revenue Service, as well as federal prosecutors, have been examining Binance’s compliance with anti-money laundering obligations, Bloomberg News has reported. The Securities and Exchange Commission has been scrutinizing whether the exchange has supported the trading of unregistered securities.
Explosive Growth
Binance, which exploded onto the crypto scene in 2017 and almost immediately took on and surpassed larger rivals, saw its market share surge after last November’s collapse of FTX.
Meanwhile, Binance had been publicly signaling that it expected to settle with US authorities probing its business practices, and that it closed compliance gaps that existed in its early years.
In a recent 14-page letter to US senators including Elizabeth Warren, Chief Strategy Officer Patrick Hillmann detailed Binance’s work to build out its compliance program and team, but didn’t provide details on the company’s finances that the lawmakers had requested. Separately, Hillmann recently said the company had compliance gaps in its early years that it has since closed, and that it wants to settle with the regulators.
