Market observers speculate that the CFTC lawsuit against Binance and CEO Changpeng Zhao would prove fatal by claiming several crypto operators as victims. The lawsuit initiated by US Commodity Futures Trading Commission (CFTC) is pursuing the most prominent fish as regulatory agencies launch enforcement actions against the crypto companies.
A scrutiny of the filing submitted by CFTC before the Northern District Court of Illinois alleges that Binance and its leadership contravened trading and derivatives laws. The suit lodged on March 27 accuses the global crypto exchange of offering trading services to US customers without seeking the requisite license for derivatives trading.
Is CFTC Lawsuit Against Binance a Political Move Downplaying Efforts by SEC?
The decision by the commodities watchdog to lodge a comprehensive lawsuit against Binance is persuading the market observers to portray a political move. A lead Fox news journalist Eleanor Terrett tweeted hours after the CFTC confirmed charging Binance as demonstrative to the Securities and Exchange Commission (SEC) that cryptos involved a commodities issue and not securities as earlier alleged by the Gary Gensler-led regulatory agency against Ripple (XRP).
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The design of the lawsuit portrays the perceived objective, particularly with the commodities watchdog accusing Binance and Zhao-led executives of overlooking regulatory compliance to pursue commercial success. Additionally, CFTC submitted that Binance dismissed the applicability of several federal laws through a choreographed strategy to boost its customer base in the US through VPNs.
CFTC lawsuit departs from the SEC case against Ripple, particularly by accusing Zhao and Binance of 7 counts of violating the controlled foreign company (CFC) legislation and the Commodities Exchange Act (CEA).
CFTC exhibits a plaintiff furnished with evidence of regulatory violations mainly by Binance affiliates, including Binance.US and Merit Peak. In particular, the CFTC claims that affiliate entities existed in a design exhibiting a single enterprise where Zhao exercised direct control, being the ultimate beneficial owner.
CFTC Seeking Total Ban on Binance and Zhao from Digital Assets
CFTC petition, as submitted before the Illinois court, seeks a total ban of Binance and Zhao from further engagement in the conducts outlined in the case as violating federal laws. In particular, the CFTC motion demands that the court prohibit the defendants from trading on registered entities, holding commodity interest or trading in digital assets.
The motion filed by CFTC seeks Binance to repay the profits realized from trading, commissions, remuneration and loans earned from the US customer base besides the civil penalties for contravening the commodities exchange and foreign control laws.
The suit against Binance represents a big straw whose impact would shake the crypto industry. Aware of the general belief that the commodity watchdog never pursues small crypto players without triumphs. An illustration of CFTC pursuits involves the 2018 case against Bitfinex. The case culminated with the Bitfinex crypto exchange settling a hefty penalty in 2021.
Adam Cochran echoes the sentiment that CFTC hardly replicates the small frequent cases initiated by SEC. Instead, the crypto observer notes that CFTC portrays beast aggression towards perpetrators that often have fatal endings for the defendants.
Refined Details in Complaints Could Have Fatal Outcome for Binance
Timothy Massad, who previously chaired CFTC, termed the complaint lodged by the commodities watchdog as possessing refined details. The detailed evidence cited in the submission shows CFTC obtained information from insiders in the Zhao-led enterprise.
The retired CFTC chair, currently a researcher at Harvard University’s John F. Kennedy School of Government, concluded that the detail level is striking.
Massad summarized the complaint as illustrating that Binance and Zhao deliberately nurtured business in the US by facilitating the persons circumventing the restrictions imposed by federal laws. Besides, the former CFTC chair observes that the complaint illustrates Binance’s concerted efforts to internally conceal the extent of business they conduct in the US.
Cochran pointed to the nature of evidence CFTC submitted in the court as potentially decapitating Binance. In his opinion, Cochran tweeted that Binance and Zhao could wrestle the case within the US. Alternatively, Binance could pursue the outside court settlement. Nonetheless, the case could prove fatal as it would force Binance to cease operating in the US.