Binance faces multiple charges, world's largest crypto exchange.

交易圆百科 Jacky
交易圆百科 Jacky
Update to 04-10

Cryptocurrency's rise spurred growth in related businesses, notably exchanges like Binance, now the largest globally. Founder Changpeng Zhao, once at his career's peak with Binance, sadly veered off course, leading to his imprisonment.

Event Details

Event Background

More than a decade ago, cryptocurrencies like Bitcoin began to emerge, but they did not develop on a large scale. However, as the recognition of cryptocurrencies became more widespread, their value also received extensive acknowledgment. As a form of currency, cryptocurrencies can not only be traded but also speculated upon, leading to the rise of a series of cryptocurrency exchanges.

After years of development, Binance, founded by Changpeng Zhao, broke through the competition to become the world's largest cryptocurrency exchange, even capturing two-thirds of the global cryptocurrency market. Changpeng Zhao, also known as CZ, remained the wealthiest Chinese for a long time and even entered the list of the top ten wealthiest people globally.

Event Progress

U.S. Commodity Futures Trading Commission (CFTC) Sues Binance

On March 27, at 11:24 AM local time, the U.S. Commodity Futures Trading Commission (CFTC) announced on its official website that it had filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois, accusing Binance's founder, Changpeng Zhao, and three entities operating the Binance platform of multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations. The CFTC also accused Binance's former Chief Compliance Officer (CCO), Samuel Lim, of aiding and abetting Binance's misconduct.

On March 28, Binance released Changpeng Zhao's response to the CFTC's lawsuit on its official blog. Zhao stated that despite Binance's cooperation with the CFTC for over two years, the CFTC still launched an unexpected and disappointing civil lawsuit. "Upon initial review, the complaint seems to present an incomplete narrative of the facts, and we disagree with many of the allegations it contains."

Zhao pointed out that Binance employs various state-of-the-art technologies and measures to ensure compliance, avoiding profit trading or "manipulating" the market under any circumstances. Binance was the first global (non-U.S.) exchange to implement a mandatory KYC (Know Your Customer) program and still holds one of the highest standards in KYC and AML (Anti-Money Laundering).

Binance firmly opposed the allegations, and the CFTC did not continue the lawsuit, seemingly proving Binance's legality. However, this was merely the first wave of challenges Binance faced.

U.S. Securities and Exchange Commission (SEC) Sues Binance

On June 5, 2023, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit in a federal court in Washington, D.C., outlining 13 charges against Binance, Changpeng Zhao, and its ostensibly independent U.S. trading operator. The SEC accused Binance of artificially inflating its trading volume, misappropriating customer funds, failing to restrict U.S. customers' access to its platform, and misleading investors in its market surveillance.

The SEC also alleged that Changpeng Zhao, who owns and controls a trading company called Sigma Chain, engaged in so-called wash trading, artificially inflating the trading volume of cryptocurrency securities on the Binance.US platform.

Despite the serious allegations, the accusations did not significantly undermine Binance and Changpeng Zhao. Even though two regulatory bodies have sued them within six months, causing a trust crisis, most users still trust Binance, believing it impossible for the world's largest cryptocurrency exchange to engage in illegal activities.

U.S. Department of Justice Announcement

On November 21, local time, the U.S. Department of Justice announced on its official website that Binance Holdings Limited, operating the world's largest cryptocurrency exchange Binance.com, admitted to involvement in alleged money laundering, unlicensed money remitting, and sanction violations, agreeing to pay a $4.3 billion fine.

As part of the plea agreement, Binance agreed to forfeit $2.5 billion and pay a $1.8 billion criminal penalty, totaling $4.3 billion in fines. Binance also agreed to retain an independent compliance monitor for three years to correct and strengthen its anti-money laundering and sanctions compliance program.

The U.S. Department of Justice pointed out that Binance failed to implement an effective anti-money laundering program. For years, Binance allowed users to open accounts and conduct transactions without submitting any identity information beyond an email address.

Meanwhile, U.S. sanctions laws prohibit Americans from transacting with its customers under U.S. sanctions, including customers from comprehensively sanctioned jurisdictions like Iran. Binance did not fully implement and comply with this regulation, failing to implement controls to prevent American users from transacting with users typically residing in Iran. From January 2018 to May 2022, Binance's neglect resulted in transactions exceeding $898 million between American users and users typically residing in Iran.

Changpeng Zhao's Admission of Guilt

On November 21, at 4:36 PM local time, Binance's founder, Changpeng Zhao, posted on Twitter that he had resigned as Binance's CEO that day, stating, "I have made mistakes, and I must take responsibility." He also mentioned that he would take a break for a while and might engage in passive investments, becoming a minority shareholder in startups in the fields of blockchain, Web3, DeFi (Decentralized Finance), artificial intelligence, and biotechnology.

Zhao also announced that Binance's former Global Head of Regions, Richard Teng, would take over as Binance's new CEO.

According to federal authorities, Binance itself admitted guilt and agreed to pay the government $4.3 billion in fines and restitution. As part of the agreement, Binance settled with the Department of Justice, the Treasury, and the Commodity Futures Trading Commission, which had been investigating the company for years.

As part of the plea agreement, Changpeng Zhao agreed to pay a $50 million fine and resign as the company's CEO. According to federal sentencing guidelines, Zhao could face up to 18 months in prison, although the Department of Justice's senior officials mentioned that prosecutors reserved the possibility of seeking harsher punishment.

As part of the plea agreement with federal prosecutors, Binance will be subject to supervision by a government-designated overseer of its operations. Court documents indicate that Changpeng Zhao is prohibited from participating in any of Binance's activities for three years following the appointment of the supervisory authority.

Event Impact

Prior to Binance, there were several cryptocurrency exchanges that were penalized for various illegal activities. Each claimed that user funds were kept independently and could not be misappropriated by the platform, using various statements and promotions to convince users it was safe to store tangible assets with a company whose headquarters were difficult to locate. However, each incident proved there were indeed risks involved.

Shortly before Binance's predicament, its biggest competitor, FTX, faced sanctions from regulatory bodies. FTX's founder, Sam Bankman-Fried, was found guilty of misappropriating billions of dollars of client funds for campaign sponsorships and personal luxury spending, ultimately being caught by authorities.

Ironically, when FTX collapsed, Changpeng Zhao still portrayed himself as a "model" for the cryptocurrency industry, claiming he was compliant and legal, not realizing his downfall was imminent. However, this wasn't a sudden occurrence; the outcome was predetermined from the day he started engaging in illegal activities.

For Binance, the impact of this event was severe. A series of law enforcement actions this year has severely damaged Binance's business. After the lawsuit filed by the U.S. Securities and Exchange Commission, banks cut off access to Binance.US, forcing the company to freeze most of its trading activities. Several executives promptly resigned.

For Changpeng Zhao personally, the situation is similarly grim. His fate is still uncertain. There are months left until his sentencing. Meanwhile, his bail was set at $175 million, including $15 million in cash. A federal judge allowed him to return to the United Arab Emirates, where he has lived this year.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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