Federal regulators sued Binance, the world’s largest cryptocurrency exchange, and its CEO for allegedly violating US trading laws and secretly coaching “VIP” customers on how to evade compliance controls.
The Commodity Futures Trading Commission, which regulates US derivatives trading, said the company and CEO Changpeng Zhao have circumvented US laws by offering unregistered crypto derivative products to Americans.
“Binance’s compliance program has been ineffective and, at Zhao’s direction, Binance has instructed its employees and customers to circumvent compliance controls in order to maximize corporate profits,” the CFTC said in a statement.
The CFTC lawsuit is seeking an undisclosed amount of fines and would ban Binance from registering in the United States.
In a statement, Binance said the lawsuit was “unexpected and disappointing, as we have been working collaboratively with the CFTC for more than two years,” adding that it has made “significant investments” in that time to ensure that US-based investors are not active on the platform.
As news of the lawsuit broke Monday, Zhao tweeted the number 4, pointing to a part of a previous statement: “Ignore FUD, fake news, attacks, etc.” FUD is a commonly used acronym among crypto fans that stands for “fear, uncertainty, doubt.”
Prices of bitcoin and ethereum, the two most popular cryptocurrencies, fell more than 3% Monday.
The lawsuit is the latest in a series of regulatory crackdowns on the crypto industry, which is still reeling from a tumultuous year marked by falling prices of digital assets, a string of bankruptcies and the catastrophic downfall in November of FTX.
Binance, which briefly considered bailing out FTX when it began spiraling, has since sought to distance itself from the now-bankrupt exchange founded by Sam Bankman-Fried, who has pleaded not guilty to multiple federal counts of fraud and conspiracy.
Binance has long argued that it isn’t subject to US laws because it doesn’t have a physical headquarters in America.
The lawsuit accuses Binance of instructing its employees to advise US-based customers about how to evade trading controls through a messaging app that was set to automatically delete text exchanges.
“Even after Binance purported to restrict US customers from trading on its platform, Binance instructed its customers — in particular its commercially valuable US-based VIP customers — on the best methods for evading Binance’s compliance controls,” the CFTC said.