On March 28th Beijing time, the US Commodity Futures Trading Commission (CFTC) filed a lawsuit against CZ, the founder of cryptocurrency exchange Binance, accusing the company of intentionally providing unregistered cryptocurrency derivative products in the United States in violation of federal laws.
The lawsuit was filed on Monday in the Northern District Court of Illinois and accuses Binance of operating derivatives trading business in the US, offering cryptocurrency transactions including Bitcoin, Ethereum, Litecoin, Tether and Binance USD. The lawsuit also alleges that under CZ’s leadership, the company instructed its employees to deceive their location by using virtual private networks.
CFTC accused Binance of violating laws related to futures trading, illegal off-exchange commodity options, failure to register as a futures commission merchant or designated contract market or swap execution facility, inadequate business supervision and incomplete anti-tax evasion plans.
Afterwards, CZ responded to this matter with a statement on Binance’s official website stating that although they have been cooperating with CFTC for more than two years now , they were surprised and disappointed by this civil complaint. After preliminary review, he found that it seems like there are incomplete factual statements included in this complaint and they do not agree with many issues charged with it.
CZ stated that no other company uses a more comprehensive or effective system than Binance to meet regulatory requirements. He claimed that Binance was the first global (non-US) exchange to implement a mandatory KYC program and remains one of the highest standards for KYC and AML today.
At the same time, CZ mentioned that Binance has a 90-day ban on day trading for employees, which means they cannot sell tokens within 90 days after their most recent purchase, and vice versa. Additionally, Binance prohibits its employees from engaging in futures trading. Zhao Changpeng emphasized that he strictly adheres to these policies himself and has never participated in products such as Binance Launchpad, Earn, Margin or Futures.
After CFTC filed a lawsuit, Bitcoin’s price fell by about $1,000 to reach the $27,000 mark while Binance’s exchange token BNB dropped by about 3%. Stocks related to cryptocurrencies also began to decline.
According to CFTC’s claim, the global exchange which has branches located within America created a system designed to hide its true influence. “Binance deliberately relies on numerous corporate entities to operate its platform while intending to conceal ownership, control and location,” said documents released by CFTC, adding “CZ is solely responsible for himself.”
In a press release, Gretchen Lowe, Chief Legal Officer of the CFTC, stated that Binance’s actions were “intentionally evading US law,” referring to its possession of internal chat records and emails from Binance.
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In recent times, American regulatory authorities have implemented high-pressure regulation towards cryptocurrency companies. On March 23rd Beijing time，The U.S Securities Exchange Commission(SEC) officially sued Justin Sun, founder of Tron & member at Huobi Global Advisory Committee, accusing him of illegal sale of securities, fraud and market manipulation, as well as separate violations against his celebrity supporters.
Currently in the US regulatory system, the SEC is responsible for investors and securities-related businesses while CFTC is responsible for commodity and futures-related businesses. Both regulate cryptocurrencies in parallel, but there are also differences. The chairman of the SEC believes that all cryptocurrencies except Bitcoin fall under the scope of securities and belong to SEC’s regulatory jurisdiction, but in CFTC’s statement, Bitcoin, Ethereum, Litecoin etc., are commodities which should be within their regulatory jurisdiction.