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The United States Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance for trading and derivatives laws violations. The lawsuit, filed on March 27, alleged that the global crypto exchange offered its derivatives trading services to U.S. customers without applying for a derivatives license.

The lawsuit from the commodities watchdog in the U.S. took many by surprise, with market observers and reporters claiming it to be a political move. Eleanor Terrett, a Fox news reporter, tweeted that sources close to the CFTC suggest the commodities regulator decided to go for a lawsuit to show the Securities and Exchange Commission (SEC) that this is a commodities issue rather than a securities one.

The lawsuit accuses Binance of prioritizing commercial success over regulatory compliance. It said that Binance disregarded applicable federal laws while boosting Binances U.S. customer base. The U.S. regulator has accused Binance and its CEO, Changpeng CZ Zhao, of seven violations of the commodities exchange and act (CEA), and controlled foreign company(CFC) rules.

Apart from the regulatory violations, the suit also specifically targets Binances U.S. trading arms, Merit Peak and Binance.US. The CFTC alleged that Binance and its affiliated entities are a common enterprise with an ultimate beneficial owner (UBO) and under the direct control of CZ.

In the suit, the CFTC has demanded that Binance and CZ should be banned from engaging in any of the conduct described in this case, such as trading on registered entities, holding any commodity interest or directing any trading of digital assets. The CFTC also wants Binance to pay back the trading profits, revenues, salaries, commissions, loans and fees derived from U.S. persons, and pay civil penalties for the violations.

The CFTC lawsuit against Binance is a big deal for the crypto industry, given its general belief that the CFTC doesnt pursue small crypto players without merit. This was evident in the Bitfinex case back in 2018, in which the crypto exchange settled with a hefty fine in 2021.

Related:7 details in the CFTC lawsuit against Binance you may have missed

Adam Cochran, a crypto observer,reiterateda similar stance, saying the CFTC doesnt go after small frequent cases like the SEC, adding that Its a different beast and its cases are often fatal.

In his Twitter thread, Cochrancommentedthat the early evidence gathered by the CFTC could prove fatal for Binance. He added that Binance could either fight the case in the U.S. or settle it outside the court, but in all likelihood, it would be forced to cease operations in the United States.

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Heres why CFTC suing Binance is a bigger deal than an SEC enforcement - Cointelegraph

The Commodities and Futures Trading Commission sued crypto exchange Binance and its CEO Changpeng Zhao for selling derivatives backed by digital assets to U.S. customers despite not being registered to do so, the latest effort by Washington to rein in cryptocurrency markets.

The suit, filed in federal court in Chicago, states that since July 2019 Binance has solicited and accepted orders and operated a facility for trading products such as futures and options that derive their value from cryptocurrencies. Binance is the world's largest cryptocurrency exchange. Binance has said it doesn't sell to customers in the U.S.

"The defendants own emails and chats reflect that Binances compliance efforts have been a sham and Binance deliberately choseover and overto place profits over following the law, Gretchen Lowe, CFTCs enforcement division principal deputy director and chief counsel, said in a statement.

Samuel Lim, Binances chief compliance officer, is also named in the suit for willful and substantial assistance in these activities. Shortly after the lawsuit became public, Binance's CEO tweeted the number "4" over from his account, which refers to an earlier goal for 2023 he has pinned to the top of his profile, "Ignore FUD, fake news, attacks, etc."

A spokeswoman for Binance said the lawsuit was "unexpected and disappointing," stating that Binance has worked "collaboratively with the CFTC for more than two years." She said it has made significant investments to ensure "we do not have U.S. users active on our platform," raising its compliance team to 750 from 100 and spending $80 million to bolster its compliance programs.

Cryptocurrencies bitcoin and ether are down more than 2% as of 1 pm ET, compared to the previous 24-hour period. The global market capitalization for all crypto assets fell 2.3% over that period.

Changpeng Zhao, founder of Binance. REUTERS/Benoit Tessier

This is the latest of many recent high-profile clashes between a U.S. regulator and the larger crypto world.

Story continues

The largest U.S. crypto exchange, Coinbase Global (COIN) said in a March 22 regulatory filing it received a Wells Notice from the Securities and Exchange Commission stating that SEC staff had made a "preliminary determination" to recommend an enforcement action for violations of federal securities laws. Coinbase, which does not offer commodities or derivatives in the U.S. to retail customers, said in a blog post last week that it was confident in the legality of our assets and services."

The SEC has separately issued 11 enforcement actions since the beginning of January against crypto firms and individuals, including one last week that targeted crypto entrepreneur Justin Sun. Several claim certain cryptocurrencies or crypto products are securities.

All of these legal battles could help establish how, and whether, cryptocurrencies are regulated in the U.S. One key area of debate is whether certain digital currencies are commodities or securities and therefore fall under the oversight of the CFTC and the SEC. The CFTC in its suit stated that bitcoin, ether and litecoin are all commodities.

The CFTC said Binance's efforts to dodge U.S. regulators began in 2017. Since the launch of its platform in 2017, Binance has taken a calculated, phased approach to increase its United States presence despite publicly stating its purported intent to block or restrict customers located in the United States, the regulator said.

In August 2020, according to its suit, CFTC said Binance documents showed the exchange earned $63 million in transaction fees while approximately 16% of its accounts were owned by U.S. customers. Binance actively instructed U.S. customers for how they could circumvent the companys restrictions by the use of virtual private networks (VPNs) as well as allowing customers to skate and submit a proof of identity or location, the suit said.

For certain VIP customers as well as key employees who controlled aspects of Binances trading derivatives trading operation, Zhao directed Lim to guide the company's VIP team to open accounts under the names of shell companies to evade compliance.

"Do not directly tell the user to run, just tell them their account has been unfrozen and it was investigated by XXX. If the user is a big trader, or a smart one, he/she will get the hint," Lim wrote to the team according to internal chat logs in the complaint that the CFTC accessed.

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US regulator goes after Binance in newest crypto clash - Yahoo Finance

March 27 (Reuters) - A federal judge on Monday temporarily stopped bankrupt Voyager Digital (VYGVQ.PK) from completing a proposed $1.3 billion sale to crypto exchange Binance.US, allowing the U.S. government more time to pursue appeals that challenge the legality of the deal.

The U.S. Attorney's Office for the Southern District of New York and the Office of the U.S. Trustee, the Department of Justice's (DOJ) bankruptcy watchdog, filed appeals in early March over a bankruptcy court's approval of the sale.

They argued that the protections could rubber stamp crypto tokens that might be unregistered securities, as well as transactions that could be illegal under U.S. securities laws.

U.S. District Judge Jennifer Rearden in Manhattan ruled Monday that the sale should be put on hold, overruling Voyager's argument that a delay could cause Binance.US to back out of the deal entirely.

Binance.US and Voyager did not immediately respond to requests for comment late on Monday.

Voyager, which filed for bankruptcy in July, said in court filings last week that the DOJ appeals should not be allowed to keep the company and its customers "in limbo" during a legal process of uncertain duration.

Binance.US has agreed to pay $20 million in cash to Voyager, and take on crypto assets deposited by Voyager customers. Those assets, valued at $1.3 billion in February, account for the bulk of the deal's valuation, according to Voyager.

The international Binance crypto exchange was sued on Monday in a separate legal action by the U.S. Commodity Futures Trading Commission (CFTC), which filed a lawsuit alleging that Binance.com operated an "illegal" exchange and a "sham" compliance program.

Binance.US maintains publicly that it is entirely independent of Binance.com, operating as the "U.S. partner" to the world's biggest crypto exchange.

The CFTC disputed that in its lawsuit, alleging that Binance personnel "dictated Binance.US's corporate strategy, launch and early operations" and that it has an ongoing relationship with BAM Trading, a company controlled by Binance CEO and founder Changpeng Zhao.

Reporting by Jaiveer Singh Shekhawat in Bengaluru and Dietrich Knauth in New York; Editing by Devika Syamnath and Jamie Freed

Our Standards: The Thomson Reuters Trust Principles.

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Judge halts Voyager Digital's $1.3 bln sale to Binance.US - Reuters

Soon after the United States Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance and its CEO Changpeng CZ Zhaofor regulatory violations, the entrepreneur sought damage control measures while rejecting allegations of market manipulation. However, investors responded by pulling over 3,400 Bitcoin (BTC) from Binance within 24 hours of the announcement, anticipating market fluctuations.

Binance.com does not trade for profit or manipulate the market under any circumstances, stated CZ,responding to the CFTCs allegations. However, episodes involving crypto entrepreneurs such as FTXs Sam Bankman-Fried and Terraform Labs Do Kwonhave shaken investor confidence in the crypto ecosystem.

Investors have started moving assets away from Binance to lessen the impact of a shutdown if it were to happen. As a result, Binance saw a reduction in its total Bitcoin balance while other exchanges registered an increase, as shown below.

Binances Bitcoin balance was reduced by over 3,900 BTC in the past week, of which 3,400 BTC were pulled out in the last 24 hours alone.

Competing exchanges, including Coinbase, Bitfinex and Gemini, recorded an increase in BTC reserves during the 24-hour timeframe.

It is important to note that Bitcoin balances on crypto exchanges have declined since March 20. Over the last seven days, nearly 27,000 BTC left major exchanges.

Related: 7 details in the CFTC lawsuit against Binance you may have missed

Alongside the CFTCs lawsuit against Binance and CZ, a federal judge temporarily halted a proposed deal between Voyager and Binance.US.

As Cointelegraph reported, Judge Jennifer Rearden of the U.S. District Court for the Southern District of New York granted the emergency stay on March 27, halting the potential deal between Voyager and Binance.US until a decision is made on the Department of Justices appeal against the bankruptcy plan.

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Binance Bitcoin balance drops by 3.4K BTC within 24 hours of CFTC lawsuit - Cointelegraph

The CFTC has sued Binance and its CEO Changpeng Zhao, or CZ.Ben McShane/Sportsfile for Web Summit via Getty Images

Cryptocurrencies are trading lower after CFTC sued major exchange Binance for regulatory violations.

Bitcoin and Ether are trading around $27,000 and $1,700 respectively, about 3% lower over the past 24 hours.

Binance called CFTC's complaint "unexpected and disappointing."

Two major cryptocurrencies Bitcoin and Ether are trading about 3% lower on Monday, after the Commodities Futures and Trading Commission, or CFTC, sued Binance,its CEO Changpeng Zhao,and former chief compliance officer Samuel Lim, for regulatory violations.

Bitcoin and Ether prices are around $27,000 and $1,700 per token respectively, per CoinMarketCap data. Both cryptocurrencies had hit all-time highs when they surged past $69,000 and $4,800 in November 2021.

The news also spurred ether outflows from Binanceto the tune of hundreds of millions of dollars over 24 hours, CoinDesk reported Tuesday, citing data from Nansen, a blockchain data analytics firm.

The US regulator said in a complaint filed in a Chicago federal court Monday that Binance breached eight provisions of the Commodity Exchange Act.

The CFTC said Binance "lucrative and commercially important 'VIP'" customers, including institutional customers in the US while disregarding registration and regulatory requirements under the US law. The federal agency is requesting the court to order monetary penalties on the exchange, as well as trading and registration bans.

Binance's Zhao wrote in a Monday blog that the CFTC's complaint was "unexpected and disappointing" as the exchange has been "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," he added.

A Binance spokesperson told Insider in an emailed response for comment late Mondaythat the exchange has made "significant investments" over the past two years to ensure it doesn't have active US users on its platform. Measures include ramping up its compliance team by more than seven times and spending an additional $80 million on external partners to support its compliance program.

Read the original article on Business Insider

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Bitcoin and Ether are down 3% after CFTC sued Binance and its CEO over US regulatory violations - Yahoo Finance