Regulators in the US are suing Binance over allegations the company knowingly offered unregistered crypto derivatives products and deliberately sought to evade compliance rules.
The Commodity Futures Trading Commission said on 27 March it had filed an enforcement action against chief executive Changpeng “CZ” Zhao and three entities related to the exchange, alleging that Binance actively solicited users and subverted the firm’s compliance controls.
The Illinois filing said Binance uses an “intentionally opaque” operating structure “with Zhao at the helm”. It also charged Samuel Lim, former chief compliance officer, with “aiding and abetting Binance's violations”.
“Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location of the Binance platform,” the filing said. It added: “Zhao answers to no one but himself.”
The CFTC lawsuit alleges the crypto firm "solicited both retail and institutional customers despite not being registered to do so".
The filing is the latest major enforcement action taken against a crypto firm in the US, after the Securities and Exchange Commission last week clamped down on rival Coinbase’s staking operations in the country.
The value of bitcoin fell about 3% on 27 March on the news, while Binance's native token BNB fell 5%.
CFTC chair Rostin Behnam said: "For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance.
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"This should be a warning to anyone in the digital asset world that the CFTC will not tolerate wilful avoidance of US law."
The lawsuit alleged that Binance operated a derivatives trading operation in the US, offering trades for cryptocurrencies including bitcoin and ether.
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The regulator also alleged that the company told employees to fake their locations via the use of virtual private networks in a bid to obscure where its subsidiaries were based.
The CFTC said Binance told customers, including trading firms, to set up shell companies in jurisdictions such as Jersey and the British Virgin Islands to evade restrictions.
“Binance knew that US customers continued to comprise a substantial proportion of Binance’s customer base,” the filing said.
Lim allegedly said: “On the surface we cannot be seen to have US users but in reality we should get them through other creative means.”
Gretchen Lowe, CFTC's enforcement division principal deputy director and chief counsel, said: "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."
Binance said the complaint was “unexpected and disappointing”.
“We have made significant investments over the past two years to ensure we do not have US users active on our platform,” the exchange said.
Immediately after the CFTC filing, Zhao wrote “4” on Twitter, indicating to his army of followers that they should ignore “fake news” and “attacks”.
To contact the author of this story with feedback or news, email Alex Daniel
