Binance, the world’s largest cryptocurrency exchange by volume, has been rocked by a recent lawsuit filed against it by the United States commodities regulator.
The lawsuit alleges that the exchange has actively facilitated violations of U.S. law by helping U.S. trading firms evade Know Your Customer compliance standards and enabling them to sidestep compliance controls by providing them information on accessing Binance.com through a virtual private network to obscure their IP addresses.
According to reports, the lawsuit was filed after an investigation into Binance’s practices uncovered that the exchange was giving preferential treatment to certain U.S. clients that were able to access its services.
VIP clients identified
Trading firms Jane Street Group, Tower Research Capital, and Radix Trading have been identified as Binance’s three “VIP” clients that were anonymously cited in the recent lawsuit filed against the CZ-led exchange by the United States commodities regulator.
According to Bloomberg, Radix Trading is “Trading Firm A,” while Jane Street was “Trading Firm B” and Tower Research was “Trading Firm C.” The firms on the CFTC’s list were examples of U.S. clients allegedly able to access Binance.
The claimed “VIP” treatment from Binance included lower transaction fees and faster trading services, the CFTC said in the filing. The firms provided it with liquidity on the exchange, and it gained the corresponding trading fee revenues.
The CFTC alleged that Binance enabled Radix to sidestep compliance controls and prioritized “commercial success over compliance with U.S. law.”
Binance CEO denies claims
Binance CEO Changpeng “CZ” Zhao vehemently denied the claims of compliance and market manipulation violations in a follow-up post on March 28. He described the lawsuit as “disappointing,” particularly because Binance had been “working cooperatively” with the CFTC.
In the absence of clear guidance from Congress as to whether the SEC or CFTC should take point on regulating the industry, crypto businesses must do what they can to anticipate possible complaints from both directions. But this is made difficult by the lack of crypto-specific guidelines from both agencies.
Crypto companies say they’re particularly frustrated by the regulatory onslaught because they’ve tried to engage with the SEC and CFTC and asked for clearer, more comprehensive rules of the road.
In a related development, Binance recently turned down an offer to acquire Tron blockchain founder Justin Sun’s ownership stake in rival exchange Huobi, according to a person familiar with the matter.
Binance wasn’t interested because of rumors that Huobi has ties to mainland China, which the exchange wants nothing to do with, according to the person, who requested anonymity.
In an interview last month with CoinDesk TV, Sun said Huobi wants to attain a license in Hong Kong and launch a new exchange there called Huobi Hong Kong.
The allegations against Binance are significant and will likely cause further scrutiny of the company’s practices. However, the fallout is yet to be determined.
The regulatory environment surrounding the cryptocurrency industry is still in its early stages, and many companies are struggling to navigate the lack of clear guidelines. Binance’s denial of the claims is a sign that the company will fight to clear its name, and the situation is likely to remain fluid for some time.
