Notes 3/27: CFTC Sues Binance

There is no rest for the wicked. Or, for businesses operating in cryptocurrencies.

An onslaught of the fledgling sector by regulators, which began earlier this year, reached a sort of apogee this morning with the Commodities Futures Trading Commission (CFTC) charging Binance, the world’s biggest trading platform by volume for cryptocurrencies.  

The agency stated that Binance solicited and served U.S. customers without registering with it “in any capacity.” According to the CFTC, Binance fostered a U.S. customer base “because it has been profitable for them to do so.” Approximately 20% of Binance’s customers were in the United States in January 2020, according to the complaint.

The decision to forgo registration of its international operations with US authorities helped Binance mint profits and onboard dubious customers, such as crime syndicates, without implementing Anti-Money Laundering (AML) and Know Your Customer (KYC) provisions, according to the complaint.   

This, of course, is not the first time that Binance has taken centerstage in regulatory action against cryptocurrency. Its officers and CEO have made questionable assertions in the past and its stablecoin is sunsetting operations in response to SEC action.

The CFTC complaint is chock-a-block with instances of Binance breaking the law, providing other regulatory agencies a stage from which to launch another round of attacks on the exchange.


The CFTC complaint identifies multiple instances in which the Binance team rode roughshod or found workarounds to existing rules for financial institutions to garner more customers. Changpeng Zhao (CZ), Binance’s CEO, is reported to have disliked “off-boarding” customers because of regulation. Therefore, he devised workarounds and fraudulent methods to overcome rules.

For example, the company advised customers to use virtual private networks or VPNs to access, even after launching a US subsidiary. offers a much greater selection of trading pairs as compared to its American operations and enables questionable trading practices, such as 125x leverage to trade derivatives, that put customer funds at risk.

The company also employed a Money Laundering Reporting Officer (MLRO) whose job was to conduct a “half assed” compliance audit to present to a non-existent Binance board and satisfy regulators. “I HAZ NO CONFIDENCE IN OUR GEOFENCING,” the MLRO is reported to have “exclaimed” to Samuel Lim, the company’s former chief compliance officer, in a chat on messaging platform Signal.     

Trading Volumes Crash

Already the consequences of CFTC’s action are becoming evident in crypto trading volumes and prices. Bitcoin, which began the day trading in the $27,000 range, fell below that figure to $26,720.41, in the aftermath of CFTC’s complaint. Its price has revived since, though not by much. As of this writing, it is changing hands for $26,990, down 3.3% from its price a day earlier.

Much of this decline can be attributed to traders fleeing Binance. According to CoinGecko, trading volumes at the exchange have crashed by almost 70% in the last 24 hours to $10.6 billion.

Analytics firm Nansen reports that traders have moved $400 million on Ethereum from Binance in the last day. Savvy traders have moved $9 million in the same timeframe.

Meanwhile, Paxos, issuer of Binance’s stablecoin BUSD, claims to have burned two percent of its circulating supply or $155 million in the last day. A stablecoin burn occurs when it is taken out of circulation or redeemed. As with most things crypto, it is difficult to know what happened in the current case.     

Endgame For Binance?

It is important to note that CFTC is a civil agency. This means that it cannot bring criminal complaints and shut down operations of companies. It punishes infractions of existing regulations by imposing civil penalties.

Crypto has had run-ins with it earlier, the most prominent one being a settlement with Tether. Even after paying a hefty fine to the agency in 2021, the stablecoin continued operations and dominates trading volumes in cryptocurrencies. Binance could choose to fight the CFTC’s case. The chances of that happening are unlikely, given the wealth of evidence cited in the complaint.  

But that settlement occurred in better times for crypto, when liquidity was on an upswing and its ecosystem was not besieged by regulators. The rash of recent actions by regulators will ensure that crypto, if it manages to survive, will emerge in a very different form.

To that end, a big fine could hobble Binance’s operations. We already know that Binance has not raised much from venture funds. Much like its stablecoin, big fines could set the exchange on a path that results in eventual closure of its operations.

More Cases

Binance should also look forward to more enforcement action in the coming days. while they are mentioned in the complaint, AML and KYC do not fall within the CFTC’s purview. It is likely that the FinCEN, the agency tasked with overseeing their implementation, will also file a case against Binance.

The complaint also provides proof of criminal tactics employed by Binance to facilitate trading on its platform. For example, CZ is reported to have operated 300 insider trading accounts to ensure liquidity at his platform. Another example is the use of a money laundering officer to fool regulators. All of this means that it is only a matter of time before Binance becomes one of the biggest shoes to fall in the crypto ecosystem.

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