CFTC Sues Binance for “Willful Evasion" of Federal Law; CEO Unfazed

Binance CEO Changpeng "CZ" Zhao

Horacio Villalobos / Getty Images

The Commodity Futures Trading Commission filed suit Monday against Binance CEO Changpeng Zhao (CZ) and three entities that operate the Binance platform, charging them with numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.

Key Takeaways

  • According to a suit filed by the CFTC in the U.S. District Court for the Northern District of Illinois, Binance solicited U.S. users for millions in revenue.
  • The complaint names Binance, its CEO Changpeng Zhao, and its former compliance officer Samuel Lim.
  • Prices of both Bitcoin and BNB dropped after the lawsuit was announced.
  • CEO Changpeng Zhao appears unfazed. 

In its complaint, the derivatives regulator said Binance failed to comply with its obligations by not registering properly. As part of the complaint, Binance's former compliance officer, Samuel Lim, is charged with aiding and abetting Binance's violations.

The CFTC has been investigating Binance since at least 2021 for failing to prevent U.S. residents from buying and selling crypto derivatives. Platforms that let Americans trade these products must normally register with the CFTC.

Binance Accused of Willfully Avoiding US Law

In the complaint, the regulator accused Binance of deliberately disregarding CEA provisions while engaging in a calculated strategy of regulatory arbitrage. The CFTC is seeking a permanent injunction against further CEA and CFTC violations, disgorgement, and civil monetary penalties. 

“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance," the regulator said in a statement. "This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law."

The CFTC also alleged Binance advised its U.S. customers to use VPN services in order to circumvent restrictions on U.S.-based customers.

“Defendants’ alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance. The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose—over and over—to place profits over following the law,” said Gretchen Lowe, CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel.

CZ Seemingly Unruffled

Binance likely anticipated the lawsuit. In February, Binance's Chief Strategy Officer reportedly said the exchange was under investigation by multiple regulators and expected to pay penalties to atone for past regulatory violations.

Prices of both Bitcoin (BTC) and Binance Coin (BNB) dropped after the announcement of the lawsuit.

In a written response Monday, CEO Zhao said Binance had worked cooperatively with the regulator for more than two years.

"Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint," he wrote.

He wrote that the company does not trade for profit or manipulate the market and all revenues are in crypto.

"We do need to convert them from time to time to cover expenses in fiat or other cryptocurrencies," he wrote. "We have affiliates that provide liquidity for less liquid pairs. These affiliates are monitored specifically not to have large profits."

The company will be cooperative in the regulatory process and will have more of a response as the situation develops, he wrote.

"In this journey towards freedom of money, we do not expect everything to be easy," he wrote. "We do not shy away from challenges."

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  1. Commodity Futures Trading Commission. “CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange.”

  2. Wall Street Journal. “Crypto Giant Binance Expects to Pay Penalties to Resolve U.S. Investigations

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