Crypto giant Binance charged with violating US trading and derivatives laws (updated)

The company and its founder allegedly told staff to break the rules.

REUTERS/Tom Wilson

Add Binance to the list of crypto heavyweights facing serious legal trouble. The Commodity Futures Trading Commission (CFTC) has charged Binance, founder Changpeng Zhao and former compliance chief Samuel Lim with allegedly violating both the agency's regulations and the Commodity Exchange Act. The company supposedly offered unregistered crypto derivatives, didn't ask users for mandatory identity verification, structured itself to avoid US regulation and even told customers how to dodge its own compliance system for US-based customers.

Zhao directed much of the rulebreaking himself, the CFTC claims, and there are reportedly chats and emails as evidence. Lim, who left Binance in 2022, is accused of knowingly aiding in the scheme. Among other things, he purportedly encouraged American users to mask trades through a VPN and even create new accounts through shell companies. The activity indicates that Binance's compliance mechanisms "have been a sham," CFTC chief counsel Gretchen Lowe says.

The Commission hopes to permanently ban Binance's registration and trading. It also hopes to levy fines and make the firm disgorge its gains. There's no estimated financial penalty.

We've asked Binance for comment and will let you know if we hear back. The company has historically defended itself against accusations. Zhao's brand is also facing a Securities and Exchange Commission (SEC) investigation over its BNB token, and a long-running probe has looked into possible insider trading. Senator Elizabeth Warren recently sent Zhao a letter accusing him of creating a "hotbed of illegal financial activity" that enables crooks and sanction-dodgers.

The charges come in the wake of multiple scandals rocking the crypto industry. The fraud charges levelled against FTX and its founder Sam Bankman-Fried are the most notable examples, but there are also allegations and investigations targeting Celsius' former CEO, Coinbase and Terraform Labs, among others. Binance is the largest crypto exchange left, and a US ban could significantly affect the industry as customers are forced to move to smaller outfits.

The CFTC is also staking out territory with this move. Both it and the SEC have argued that they should regulate crypto in the absence of laws outlining their roles. With these charges, the CFTC is signalling that it wants to be the de facto regulator for crypto trading. House and Senate members may limit the Commission's authority if they pass legislation, but the agency clearly isn't willing to wait before cracking down.

Updated 3/27 2:45PM ET: Binance tells Engadget it finds the charges "unexpected and disappointing," as it says it has been collaborating with the CFTC for over two years. It also points to a large investment in keeping Americans off its platform over that time, including a surge in its compliance headcount (from 100 to 750). It doesn't directly address allegations of helping customers bypass those restrictions.