The new Commodity Futures Trading Commission complaint against Binance looks like a forceful blow to a cryptocurrency exchange already under pressure from other elements of the U.S. government.
“We can all agree that blatantly flouting the laws of a country is not acceptable,” said Sheila Warren, CEO of the Crypto Council for Innovation, in a statement shared with Forbes. “In situations where this is alleged, the CFTC doesn’t waste its time on jabs–it goes straight for the knockout. It’s safe to assume that this action from the CFTC was a long time in the making,” she added.
On Monday, the CFTC issued a complaint against Binance, alleging the company offered crypto derivatives, such as futures or options contracts, with leverage for assets such as bitcoin, ether, and litecoin to U.S. persons without registering as a futures commodity merchant. Even though Binance is not based in the U.S., in fact it has no official headquarters, if it services U.S. customers it must comply with U.S. law.
The complaint also named Changpeng Zhao, the Binance founder and CEO, and former Chief Compliance Officer Samuel Lim, who allegedly orchestrated much of the malfeasance. The agency is seeking disgorgement of profits, civil monetary penalties, registration bans and a permanent injunction against further violations.
Zhao said in a blog post, “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.” He added the exchange blocks U.S. users and maintains high anti-money-laundering and customer-identity standards, that Binance has been working with the CFTC for more than two years and that the complaint was “unexpected and disappointing.”
Full responses to the CFTC allegations will come “in due time,” he added.
“The outcome of the Binance case will depend on the company’s response, but a settlement is a likely possibility,” Warren said. “This action will hopefully mean the end of people coming into the crypto space trying to take advantage of the lack of regulatory clarity in the United States.”
The action came on the same day as the Department of Justice succeeded in at least slowing the purchase of 3.5 million Voyager customer accounts by Binance’s U.S. subsidiary after regulators failed to delay it in bankruptcy court.
A motion to put the court’s ruling on hold was granted by Judge Jennifer Rearden of the U.S. District Court in New York on Monday. She said she would explain her reasons for the ruling later.
The SEC opposed the rescue initiative in the bankruptcy case last month, citing a lack of “necessary information regarding the safety of assets,” which include crypto accounts holding about $1 billion of cryptocurrencies. Voyager, it said, failed “to adequately describe whether third parties, including Binance.US affiliates or foreign persons or entities, will have access to the keys for customer wallets or control over anyone with access to such wallets.”
The agency also said the plan to return holdings to customers whose funds were frozen was not shown to be in compliance with U.S. securities laws. U.S. Bankruptcy Judge Michael Wiles rejected the SEC’s claims.
New York separately said Voyager had been running an unlicensed securities business.
Voyager’s creditor committee, which advocates for the interests of customers in the bankruptcy, said on Twitter it is “still analyzing the situation” and “will continue to aggressively oppose the government’s efforts.” Creditors overwhelmingly back the plan.
The company did not respond to Forbes’ request for comment. A spokesperson for Binance.US wrote in a statement: “It is unfortunate that Voyager customers continue to be victimized by a long and arduous bankruptcy process. We hope the court will put an end to the perpetual delays which have left customers stranded without access to their assets for nearly nine months.”
In February, New York effectively killed the Binance USD (BUSD) token by ordering partner Paxos to stop minting the stablecoin. The state’s Department of Financial Services cited a failure by Paxos, a U.S. company that created a version of BUSD, regarding “several unresolved issues related to Paxos’ oversight of its relationship with Binance.”
Binance decided to wind down the stablecoin, which now has a market value of about $7.7 billion, according to Nomics, down from $15.8 billion at the time of the order.
There may be market implications to the U.S. actions against Binance, which appear to be part of a broad, though unannounced crackdown on crypto in general by U.S. regulatory agencies, the White House and some members of Congress. Binance controls about 60% of world crypto trading, according to data provider CryptoCompare. “If market makers step back from trading on Binance now, and if Binance’s U.S.-based trading desks have to stop operations, that will reduce liquidity in an already thin market,” writes crypto researcher Noelle Acheson.
So far, reaction to the CFTC charges has been subdued, with the overall crypto market up 2% at $1.2 trillion over the past 24 hours, according to CoinGecko. Bitcoin is trading sideways, according to Nomics, at $27,4222 as of 3 p.m. in New York. Ether is quoted around $1,763, up 3% over the past 24 hours. Binance’s BNB token is also up 3% at $317.
XRP is leading the heavyweights with a 12% gain, trading to 53 cents, about its highest since October. The bullish outlook may partially stem from the classification of other major tokens as commodities in the CFTC complaint against Binance. The U.S. Securities and Exchange Commission maintains XRP is an unregistered security in its court battle against Ripple, a company associated with the token.