The Commodities Futures Trading Commission on Monday sued Binance, the world's largest cryptocurrency exchange, along with founder and CEO Changpeng Zhao, for trading and derivatives rules violations. Bitcoin shed more than $1,000 on the latest U.S. government crackdown vs. cryptocurrency firms, but came off lows.
Binance 'Disregarded Federal Laws'
Binance, Zhao and former Chief Compliance Officer Samuel Lim solicited U.S. customers while failing to register and comply with regulatory requirements as part of its "ineffective compliance program," according to the Northern District of Illinois court filing.
The exchange accepted margin, futures, options trading, swaps, and leveraged transactions for "commodities" including bitcoin, ethereum and litecoin in July 2019. Binance sought U.S. retail and institutional customers while ignoring regulatory requirements under the direction of Zhao, the filing states.
In August 2020, Binance earned $63 million in fees from derivatives transactions. And 16% of its accounts were held by U.S. customers. By May 2021, Binance's monthly derivatives transaction revenue increased to $1.14 billion.
Binance never registered with the CFTC "in any capacity" according to the filing. The exchange "disregarded federal laws," including those that require controls to prevent money laundering and terrorism financing, the agency alleges.
Zhao and Binance's senior management team "actively facilitated violations of U.S. laws," by "assisting and instructing" U.S. customers to evade compliance controls Binance purportedly implemented, the filing noted.
Cracking Down On Crypto
U.S. regulators clamped down on crypto firms since the turn of the year.
On March 1, a group of U.S. senators launched an investigation into Binance, Zhao and its domestic affiliate Binance.us for potential sanctions evasion, money laundering and unlicensed money transmission.
On March 22, Coinbase announced it received a Wells notice from the Securities and Exchange Commission for potential securities violations. A Wells notice signals possible enforcement actions are coming
COIN stock plunged 14% on March 23 following the SEC Wells notice. Shares tumbled 9% on Monday's Binance news.
Elsewhere, crypto exchange Kraken paid $30 million to the SEC in early February to settle charges of selling unregistered securities.
The Bitcoin price retreated 4% intraday following the news, dropping to $26,684 before recovering back above $27,000. Ethereum shed 4%, falling as low as $1,691 before reversing back to $1,720. Both are down more than 2%.
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