Binance and its founder Changpeng Zhao sued by US regulators for operating an “illegal” exchange and a “sham” compliance program

First, it was the fall of Terra Luna, then the collapse of San Bankman-Fried crypto exchange FTX. Is Binance the other shoe to drop in the crypto industry?

A few hours ago, the world’s biggest crypto exchange Binance and its founder and CEO Changpeng Zhao (CZ) were sued by the U.S. Commodity Futures Trading Commission (CFTC) for operating what the regulator alleged were an “illegal” exchange and a “sham” compliance program.

CZ is not alone. The CFTC also charged Binance’s former chief compliance officer Samuel Lim with aiding and abetting Binance’s violations. The CFTC charged Binance, Zhao, and Samuel Lim with “willful evasion” of U.S. law, “while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”

The agency said it’s seeking “disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations, as charged.”

“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,” said CFTC Chairman Rostin Behnam. “For years, Binance knew they were violating CFTC rules, working actively to both 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 U.S. law. I applaud the diligent and dedicated work of the CFTC’s Enforcement team in bringing this action, and for their hard work in addressing illegal operations in the digital asset space,” CFTC said in a statement.

The regulator’s legal action arises amidst a wider and more prominent campaign against cryptocurrency companies. Over the years, American prosecutors and civil investigators have focused on crypto enterprises for unlawful offerings and non-compliance with regulations aimed at curbing illicit practices. However, the frequency of such government interventions has intensified in recent times.

The announcement comes just a few days after Binance halted deposits and withdrawals, which the company said was caused by technical glitches that affected its spot trading marching engine.

In his response to the CFTC lawsuit, CZ said in a blog post:

“Today, the CFTC filed an unexpected and disappointing civil complaint, despite our working cooperatively with the CFTC for over two years. Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint. While we will only be able to give full responses in due time, we will address a few key points below.”

Early this month, crypto investors also withdrew about $6 billion from Binance’s stablecoin after the US crackdown on the exchange. According to the latest data from market tracker CoinGecko, Binance’s stablecoin, Binance USD, has seen around $6 billion of outflows following a U.S. regulatory crackdown on the company that issues the token.