Binance and CEO Changpeng Zhao sued by CFTC over trading and derivative violations

Binance, the world’s largest crypto exchange by volume; its CEO Changpeng Zhao; and Chief Compliance Officer Samuel Lim, are being sued by the U.S. Commodity Futures and Trading Commission, according to a filing on Monday.

The company, Zhao, Lim are being sued for allegedly breaking trading and derivatives rules.

The exchange has never registered with the CFTC in any capacity and has “disregarded federal laws” for U.S. financial markets, including laws that implement controls to prevent and detect money laundering, terrorism financing, among other aspects, the filing states.

Binance is the world’s largest crypto exchange by trading volume, with about $9 billion in trading volume in the past 24 hours and over 90 million customers globally, according to CoinMarketCap data. It launched in June 2017 and within 180 days became the largest crypto exchange in the world.

In May 2021, Binance’s monthly revenue earned $1.14 billion from derivatives transactions, up from $63 million in August 2020, the CFTC noted. Of that amount, about 16% of Binance’s accounts were held by U.S. customers.

This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years,” a Binance spokesperson said to TechCrunch. “Nevertheless, we intend to continue to collaborate with regulators in the US and around the world. The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”

Binance has spent $80 million on external partners like KYC vendors, transaction monitoring, market surveillance and investigative tools to support its compliance programs, the spokesperson added.

However, Zhao and other involved parties in Binance’s senior management have “failed to properly supervise Binance’s activities and activities and, indeed, have actively facilitated violations of U.S. law, including by assisting and instructing customers located in the United States to evade the compliance controls Binance purported to implement to prevent and detect violations of U.S. law,” the filing stated.

Separately, last month a Binance executive shared it expected to pay monetary penalties to settle probes into its business in the U.S. Patrick Hillman, Binance chief strategy officer, said the company’s executives were unfamiliar with laws and rules written surrounding bribery, corruption and money laundering.

Binance is “working with regulators to figure out what are the remediations we have to go through now to make amends for that,” Hillman said. The outcome could range from “like a fine” to “could be more.”

In December, Reuters reported that the U.S. Department of Justice was investigating Binance since 2018 over compliance with U.S. anti-money laundering laws and sanctions, but was split over whether to conclude the investigation or continue reviewing evidence. At the time, Binance publicly disputed the article.

This is a developing story.