Bitcoin plunges as CFTC sues Binance over alleged regulatory violations

The price of bitcoin has taken a hit after a lawsuit against cryptocurrency exchange Binance was filed in a US court.

Binance, and co-founder Changpeng 'CZ' Zhao, are being sued by US regulator CFTC. Picture: Supplied

The price of bitcoin has taken a hit after a US regulator, the Commodity Futures Trading Commission (CFTC), sued Canadian businessman Changpeng ‘CZ’ Zhao and the company he co-founded, Binance.

It’s a major crackdown on the crypto exchange and its executives.

The price of bitcoin, the world’s most popular cryptocurrency, fell 4.4 per cent as news of the lawsuit spread. This morning one bitcoin was valued at $40,589.

The regulator alleges Binance had attempted to “flout and actively attempt [to] circumvent” CFTC requirements.

The CFTC alleges the defendants, including Changpeng Zhao, pictured, chose ‘profits over following the law’. Picture: Paolo Bruno/Getty Images

In a filing in federal court in Chicago, the CFTC listed crypto billionaire CZ, former compliance chief Samuel Lim and three Binance companies as defendants in the civil action.

The CFTC is alleging that Binance, which is under the control of CZ and Lim, “solicited and accepted orders” for spot and derivative transactions from customers in the US.

It alleges that CZ, Lim and Binance took a “calculated, phased approach” to increase the company’s presence in the US, despite publicly stating that it would block or restrict customers there from accessing its platform. And in the process, the CFTC alleges that the defendants ignored registration and regulatory requirements under US law.

The CFTC alleges that CZ, whose net worth is about $15.73 billion, employed a “deliberate approach to attempt to avoid regulation”, including by stating that Binance’s headquarters was “wherever he is located at any point in time”.

Binance co-founder and CEO, Chinese-born Canadian Changpeng Zhao, also known as CZ. Picture: AFP

The defendants are accused of assisting and instructing US customers to “evade the compliance controls” that were purportedly in place to prevent and detect violations of US law – including through the use of VPNs and allowing customers to trade despite not submitting proof of identity.

The lawsuit alleges CZ, Lim and Binance violated seven sections of the Commodity Exchange Act, which include conducting activities not executed on a registered board of trade, failing to register as a futures commission merchant and failing to register as a designated contract market or swap execution facility.

Also, it’s alleged the defendants failed to perform their supervisory duties diligently and did not follow the required “know your customer” and anti-money laundering procedures. The CFTC also alleges they wilfully tried to evade provisions of the Act and regulations.

Gretchen Lowe, chief counsel for the CFTC, alleged in a press release: “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.”

A permanent injunction is being sought to prohibit the defendants from engaging in the conduct that is alleged.

Also, the CFTC is seeking an order to stop the defendants from entering into any transactions involving “commodity interests”.

The regulator also wants the defendants to “disgorge” any profits or revenue made from the alleged activities as well as pay restitution to customers. A fine could also be imposed on the defendants.

Binance issued a statement in which it described the lawsuit as “unexpected and disappointing”, adding: “We do not agree with the characterisation of many of the issues alleged in the complaint.”