The world’s biggest crypto exchange Binance and its CEO and founder Changpeng Zhao were sued by the U.S. Comm
odity Futures Trading Commission (CFTC) on Monday for operating what the regulator alleged were an “illegal” exchange and a “sham” compliance program.
The CFTC sued Binance, Zhao and its former top compliance executi
ve with “willful evasion” of U.S. law, “while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”
The regulator’s lawsuit comes amid a broader and increasingly high-profile crackdown on crypto companies. For y
ears, U.S. prosecutors and civil investigators have targeted crypto firms for illegal offerings and failures to comply w
ith rules designed to prevent illicit activity. But the pace of such government activity has surged recently.
The CFTC said in its complaint on Monday that from at least July 2019 to the present, Binance “offered and e
xecuted commodity derivatives transactions on behalf of U.S. persons,” in violation of U.S. laws.
Binance’s compliance program has been “ineffective” and the firm, under the direction of Zhao, told employees and customers to circumven
t compliance controls, the CFTC said, citing a number of practices first reported by Reuters in a series of investigations into the exchange last year.
The CFTC also accused Binance’s former Chief Compliance Officer Samuel Lim of “aiding and abetting” Binance’s
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violations. Lim did not immediately respond to calls and messages from Reuters.
A spokesperson for Binance, which dominates the global digital asset sector, said the firm will continue to “collabo
rate” with regulators despite the lawsuit being “unexpected and disappointing.”
Binance has made “significant investments” to ensure it does not have U.S. users on its platform, the spokesperson said.
CFTC Chairman Rostin Behnam said in a statement that Binance executives knew for years “they were violating
CFTC rules, working actively to both keep the money flowing and avoid compliance.”
The CFTC is responsible for oversight of commodities and
derivatives markets, including for Bitcoin. Firms such as brokers that facilitate U.S. customers’ trading of such products are required to be register with the agency.
Reuters reported in December that the U.S. Justice Department had been investigating Binance since 2018 for possible money-laundering and sanc
tions violations. Binance has processed at least $10 billion in payments for criminals and companies seeking to evade U.S. sanctions, Reuters has found.
Binance’s cryptocurrency BNB, the world’s fourth largest by market size, dropped around 4% on the news.
Zhao, a billionaire who was born in China and moved to Canada at the age of 12, has not yet directly addressed the CFTC’s allegations.
In a tweet on Monday afternoon, he wrote “4” – a reference to a previous post listing his “Do’s and Don’ts” for 2023. Th
e fourth item on the list was “Ignore FUD, fake news, attacks,” using an acronym for “fear, uncertainty and doubt” often used in crypto in relation to news perceived as negative.