The news broke this morning that the CFTC (Commodity Futures Trading Commission) has filed a lawsuit against the leading cryptocurrency exchange Binance and its CEO Changpeng Zhao for alleged trading and derivatives violations. This latest court case against a major cryptocurrency exchange has investors around the world on edge.
Binance, the world’s second-largest exchange by volume, is facing charges that it and Zhao violated Section 2(c)(2)(E) of the Commodity Exchange Act and other regulations. The CFTC is alleging that Binance did not register as a futures commission merchant before allowing US citizens to trade digital asset derivative products on its platform.
The CFTC claims that Binance offered digital asset derivatives to US customers without registering with the CFTC or seeking its approval. According to the commission, during a 12-month period between September 2019 and August 2020, Binance actively encouraged the trading of digital asset derivatives with US customers without proper registration, which constitutes a violation of CFTC rules.
The CFTC is also alleging that Zhao had direct knowledge and participation in the trading and derivatives products, and failed to take proper steps to stop it. According to the complaint, Zhao “knowingly and recklessly engaged in unlawful activities” related to the derivatives trading.
The CFTC is now seeking a permanent injunction to stop the alleged violations and requesting both civil monetary penalties and disgorgement from Binance and Zhao. The lawsuit was filed in the US District Court for the Northern District of California.
This case is the latest in a series of legal issues to hits the crypto industry, as the CFTC is continually looking to keep the industry in check. It’s unclear at this point how the lawsuit will turn out, but investors will certainly be watching closely to see how the situation develops.
