Binance Holdings Ltd. and its CEO Changpeng Zhao, also known as CZ, are facing legal action from the US Commodity Futures Trading Commission (CFTC) over alleged trading and derivatives rules violations. 

The CFTC filed a lawsuit against Binance and CZ in federal court in Chicago on Monday. The lawsuit marks another regulatory obstacle for one of the world’s largest cryptocurrency exchanges. 

Binance Faces New Legal Challenge From US Regulators

The lawsuit filed by the US CFTC against Binance Holdings and its CEO Changpeng Zhao alleges that the exchange allowed US-based customers to trade derivatives on the platform in an alleged violation of US trading and derivative rules. 

The CFTC stated that Binance did not register with the agency to conduct such business in the US and that the exchange failed to implement proper anti-money laundering procedures according to the regulator. CFTC Chair Rostin Behnam claimed in a press release by the CFTC:

Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors. I have been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market

Furthermore, the lawsuit alleges that Binance “knowingly” disregarded applicable provisions of the Commodity Exchange Act (CEA) while “engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”

According to the CFTC, Binance allegedly ignored relevant rules and regulations to gain a competitive advantage over other exchanges. Additionally, the lawsuit seeks disgorgement of “ill-gotten” gains, civil monetary penalties, permanent trading and registration bans, and injunctions against future violations of the CEA and CFTC regulations. 

Will This Lawsuit Have A Major Impact On Binance’s Operations?

The CFTC’s chair Behnam also applauded the work of the CFTC’s enforcement team bringing the legal action against the exchange and noted that the lawsuit would serve as a warning to anyone in the crypto industry. The CFTC will continue to closely monitor the nascent industry and take legal action against companies that violate the regulations. 

The CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel Gretchen Lowe stated that the core of the CFTC’s complaint against Binance is the defendants’ alleged willful evasion of US law.

Lowe emphasized that the CFTC and its Enforcement Division will pursue digital asset platforms and individuals actively attempting to circumvent CFTC regulatory requirements. 

It is currently uncertain how the legal actions taken by the US Commodity Futures Trading Commission (CFTC) against Binance will impact the exchange’s users and trading volume. However, it is possible that it could result in a loss of users and a decrease in critical metrics.

The lawsuit filed by the US CFTC against the exchange is a sign of the increasing regulatory scrutiny that cryptocurrency exchanges face. As of this writing, there has been no official statement from Binance’s CEO, Changpeng Zhao, regarding the lawsuit.

Featured image from Unsplash, chart from TradingView.com