Binance Sued by the CFTC

Key Takeaways

The CFTC is suing Binance.
The regulator claims Binance is offering commodities trading services to U.S. customers.
It also believes that Binance helped its clients circumvent U.S. compliance controls.

The CFTC filed a 74-page complaint against Binance today at the U.S. District Court for the Northern District of Illinois. It claims the company is engaging in jurisdictional arbitrage in order to offer commodities trading services to its U.S. customers.

Regulatory Arbitrage

Binance is in hot waters with regulators again.

Today the United States Commodity Futures Trading Commission sued the leading global crypto exchange and its CEO, Changpeng “CZ” Zhao, for its alleged numerous violations of the Commodity Exchange Act and CFTC regulations.

According to the regulator, Binance purposefully ignored CEA provisions by engaging in regulatory arbitrage strategies—meaning that the company circumvented U.S. law and restrictions by basing itself in friendlier jurisdictions. While Binance was originally founded in China, the firm currently does not have official headquarters anywhere.

“Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors,” said CFTC Chairman Rostin Behnam in a press release. “For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance.”

The CFTC alleges that Binance has been unlawfully providing commodities trading services to U.S. customers since 2019. Interestingly, the regulator explicitly named BTC, ETH, and LTC among these commodities. Securities and Exchange Commission Chair Gary Gensler, however, claimed in February that every cryptocurrency other than Bitcoin was a security.

The CFTC further claimed that Binance had instructed U.S. employees and customers on how to circumvent the exchange’s compliance controls. The agency is seeking disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further commodities law violations.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.

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