On March 27, the US Commodity Futures Trading Commission (CFTC) filed a lawsuit against the Binance crypto exchange and its CEO, Changpeng Zhao. In total, that’s 74 pages of indictments – and here are some of the most interesting bits from the document.
1. Tokens = goods
In the lawsuit, the CFTC refers to Bitcoin, Ethereum, Litecoin, USDT and BUSD as commodities.
BTC: commodity
ETH: commodity
LTC: commodity
USDT: commodity
BUSD: commodity— the CFTC pic.twitter.com/Y3qi6vDmTA
— scott➕ (@scott_lew_is) March 27, 2023
Earlier this year, the US Securities and Exchange Commission (SEC) referred to BUSD as an “unregistered security” in a warning letter to Paxos. The head of the SEC, Harry Gensler, has also repeatedly argued that almost all crypto assets are securities, with the exception of bitcoins.
Sheila Warren, CEO of the Crypto Council for Innovation, said the announcement is a “powerful blow against the SEC” and could have significant implications for the industry and which regulator will gain ultimate power.
Meanwhile, Coinbase Chief Legal Officer Paul Grewal criticized the lack of agreement between the two US regulators, stating:
“Obviously, securities can also be commodities, with some exceptions. And it depends on which regulator you ask and when.”
2. Access to Zhao’s phone
Binance CEO Changpeng Zhao is the defendant in this lawsuit. The CFTC says they were able to collect the necessary evidence through correspondence in Signal and chat from “Zhao’s phone.” Many people are now asking the question – how is this possible?
“Zhao has communicated through Signal, using the auto-delete feature, with numerous Binance executives, employees, and agents for a variety of purposes,” the CFTC said.
How do they have acces to CZ phone? pic.twitter.com/FWMeKVCGSZ
— Martin Krung 🦇🔊 (@martinkrung) March 27, 2023
3. Accusation of terrorist activities
The regulator accuses the firm’s employees of knowing that their platform was facilitating illegal activity. In particular, we are talking about an incident that occurred in February 2019, when the former head of the law enforcement department, Samuel Lim, received information “about Hamas transactions.”
According to the document, Lim explained to a colleague that terrorists usually send “small amounts” because “large amounts are money laundering.”
4. Zhao Omnipresent
The CFTC alleges that Zhao owned dozens of entities operating the Binance platform as a “general enterprise.” The regulator cited an example where the CEO personally approved petty office expenses and paid for the company’s services, such as Amazon Web Services, with his personal credit card.
5. Bonuses for VIP clients
VIP users, according to the regulator, received a “prompt notification” of any law enforcement request on their account.
Binance has also advised its valued US customers to log into their accounts using virtual private networks or VPNs to hide their location. The Company also did not generally ask these customers to provide any identification documents as required by US law.
“Zhao wanted US users, including VIP clients, to transact on Binance because it was profitable for the crypto exchange to host them,” the lawsuit alleges.
Regulators have determined that one Chicago-based firm controls approximately 12% of Binance’s total trading volume, and Zhao encouraged them to conduct business on the exchange using IP addresses outside the US.
6. Ignoring US regulations
Binance is also accused of being aware of US regulatory requirements but ignoring them and making “deliberate strategic decisions to avoid violating federal law.” This is allegedly confirmed by internal correspondence between Binance executives, which date back to 2018.
7. Where Zhao – there is Binance
The lawsuit says that the company deliberately did not disclose its location, and Zhao often said that the headquarters was with him – wherever he was at that time.
The CFTC allege that Binance used a “maze” of ownership structures to deliberately hide where each entity operates from, making jurisdiction difficult.
8. Fines and injunctions
Already at the end of the document, the regulator stated that it requires payment of fines, recovery of any trading profits, salaries, commissions, loans or fees received from Binance’s allegedly illegal actions. It also requires a permanent injunction against further violations.
15/ The CFTC is also asking for clear action including disgorgement, civil monetary penalties and permanent trading and registration bans.
Following such a complaint, will Binance be permitted to operate again in the US or have US clients again?
— Henri Arslanian (@HenriArslanian) March 27, 2023
Reply Binance
Currently, the crypto exchange has already rejected a number of accusations and claims from the CFTC. On March 28, Zhao released a statement calling the complaint “surprising and disappointing,” noting that the company has been working with the regulator for the past two years to develop best-in-class technology to meet the US lockdown.
Source: Cointelegraph, Marketwatch
