Binance Sued by CFTC In Another Blow To Crypto Industry
In a string of blows to the Crypto industry, the world’s largest crypto exchange, Binance, found itself in the claws of US market regulating body CFTC (Commodity Futures Trading Commission) over allegations of not complying with laws governed for financial markets. While suing Binance along with two of its senior executives- Changpeng Zhao, the founder and CEO, and Samuel Lin, the former chief compliance officer, CFTC alleged the duo of attracting US citizens to trade despite not having the permission to operate in the country.
Commodity Futures Trading Commission, in a suit filed in Chicago’s federal court, also accused Zhao of using the opaque web of corporate entities to exploit the regulations while also helping the traders based in the US hide their actual locations. While announcing the lawsuit, Rostin Behnam added “Binance was well aware of the CFTC laws it was violating for years as it actively kept the money flowing and avoided the compliance.” He also warned other companies of not indulging in such willful avoidance of Federal laws.
Against the violation of Federal laws, the CFTC is seeking a fine of an undisclosed amount while advocating to bar Binance, including its management or any direct associate, from participating in the trading of commodities. As the entire industry sought a response from Changpeng Zhao, popularly known as CZ, he finally broke his silence and called the allegation ‘unexpected & disappointing.’ According to CZ, Binance has never served any traders based in the US while working in compliance with the laws drafted by CFTC.
The complaint by CFTC made several revelations about the whole matter, including alleged loopholes in the ‘Know Your Customer’ protections, which is a set of protocols designed for keeping bad actors away from using the platform. Despite the so-called strict measures set by Binance, many customers were still able to bypass the background checks, the complaint mentioned. CFTC also quoted certain text messages that it claimed were from CZ, that prove he was aware of the aforementioned loopholes. Certain employees from Binance were also said to have acknowledged the ‘illegal activities being carried away’ by the company.
The clash between Binance and CFTC is seen as an attempt by regulatory bodies to assert their dominance on over centralized crypto exchanges. This is worth noticing how the SEC (U.S. Securities and Exchange Commission) too has recently been active in taking action against several crypto firms for offering digital assets to the public for sale without registering them as investment products. The already struggling crypto market did not take the news well and bitcoin, as a result, fell over by 3% on Monday.
Observers in the market have been worried about the lawsuit, for this will bring a drastic decline in the market liquidity. According to Noelle Acheson, author of the popular newsletter- Crypto Is Macro Now, “the lawsuit may have serious repercussions in the whole crypto market in terms of market liquidity in case Binance’s trading desks stop operating or if the market makers stop trading on Binance.” As per the writing of this blog, Bitcoin made quite an impressive recovery in the market, sending positive sentiments across the crypto industry.
