Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao have been sued by the U.S. Commodity Futures Trading Commission (CFTC) for allegedly violating derivative rules.

See related story: CFTC chair calls Ethereum a commodity, in contrast to SEC chair Gensler’s position

Fast facts

  • The CFTC filed a complaint on Monday against Binance, Zhao and former compliance chief Samuel Lim for alleged violations of the Commodity Exchange Act and CFTC regulations.
  • The regulator accused Binance of disregarding “federal law essential to the integrity and vitality of the U.S. financial markets” by knowingly offering futures and derivative products without registering under the CFTC. 
  • Binance solicited both retail and institutional customers despite not having permission to operate in the U.S., according to the CFTC.
  • Binance and its executives allegedly instructed U.S.-based customers to use virtual private networks to obscure their locations and advised VIP users to open Binance accounts under the name of shell companies, according to the lawsuit. 
  • The CFTC cited Binance’s own documents to state that the platform earned US$63 million in fees from derivatives transactions in August 2020, and about 16% of its accounts were held by U.S. customers.
  • The lawsuit seeks monetary fines and an order to prevent the company from violating U.S. rules.
  • Zhao tweeted the number “4,” shortly after the lawsuit was made public, a reference to his Jan. 2 tweet, in which he said “4” means “ignore FUD, fake news, attacks, etc.”
  • The CFTC’s move follows the Securities and Exchange Commission issuing a Wells notice to U.S.-based crypto exchange Coinbase last week, warning the exchange of possible violations of U.S. securities law.

See related story: SEC warns Coinbase of potential legal action over staking, separately targets Tron founder Sun