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  • The exchange is alleged to have breached trading and the derivatives laws.
  • CFTC is seeking a total registration ban against the exchange.

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US Commodity Futures Trading Commission (CFTC) has sued top cryptocurrency exchange Binance and CEO Changpeng Zhao ‘CZ’ for allegedly operating an illegal crypto derivatives asset exchange and violating federal laws.

Filed on March 27 before the US District Court for the Northern District of Illinois, the complaint specifically accused CZ and Binance of going against the Commodity Exchange Act (CEA) and the CFTC regulations while ‘engaging in a calculated strategy of regulatory arbitrage’ for commercial benefits. Also charged is Samual Lim, Binance’s former compliance officer.

‘‘For years, Binance knew they were violating CFTC rules, working actively to keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of US law,’’ the filing stated, adding that the exchange did not require its customers to provide identity-verifying information before using the platform.

For all the alleged violations, CFTC seeks disgorgement, civil fines, a total trading and registration ban against the exchange, and further injunction against further violation of the CEA and CFTC regulations by Binance.

Illegal derivatives exchange

According to CFTC, Binance runs derivatives trading operations in the US for trades in cryptocurrencies, including Bitcoin, ether, litecoin, tether, and Binance USD – all referred to by the agency as commodities. This month, the CFTC clashed with the Securities and Exchange Commission (SEC) over the classification of Ethereum and stablecoins, saying that the assets are commodities.

Since 2021, CFTC has been investigating whether Binance failed to keep US residents from buying and selling crypto derivatives under a provision that any entity offering such products should be registered.

Additionally, the complaint accuses Binance, CZ, and Lim of willfully assisting customers in evading regulations and obscuring evidence from the commission through a messaging app set to delete communications automatically. Further, the exchange allegedly instructed customers to circumvent IP address controls or use new accounts in offshore shell companies.

The suit did not surprise the crypto community, considering the many investigations Binance is currently facing. The Internal Revenue Service and the Securities and Exchange Commission are other regulators pursuing the company.

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