It should be noted that now the increased attention of US regulators to cryptocurrencies is not surprising. However, just last week, the Securities and Exchange Commission filed a lawsuit against Tron founder Justin Sun, accusing him of creating and distributing unregistered securities in the form of TRX and BTT tokens.

It then became known that the Commission wanted to start proceedings against cryptocurrency exchange Coinbase as well. Apparently, the regulator is not happy with the trading platform’s staking platform, which its representatives surely see as securities.

Now cryptocurrency exchange Binance has also come under attack.

What Binance is being sued for

As we have already noted, the reason for the lawsuit was the alleged violation of the rules of trading and working with derivatives by the exchange Binance. The CFTC’s lawsuit against cryptocurrency exchange Binance is based on an allegation that the platform was providing access to such trading instruments to US citizens, although it had no right to do so given its lack of proper registration.

The lawsuit alleges that Binance has been providing access to derivatives trading in the US since July 2019, through which locals can trade futures, swaps and options on cryptocurrencies including Bitcoin, Etherium and Lightcoin.

The document states that the crypto-exchange was allegedly deliberately expanding its own presence in the States. At the same time, in public, Binance representatives have rejected such trading opportunities for US residents. Here is the relevant rejoinder from the lawsuit, cited by Decrypt.

Binance used a deliberate, incremental approach to expand its presence in the US. This came despite a public claim of a perceived intention to “block” or “restrict” US customers from accessing its own platform.

CFTC officials claim that Changpen Zhao and other Binance employees were aware of the need to register with the relevant authority to provide access to said trading instruments to US residents. However, they “chose to ignore these requirements and thereby diminished the value of Binance’s ineffective compliance program.”

The bottom line is that Binance allegedly provided access to derivatives for US citizens, even though it had no right to do so. At the same time, representatives of the exchange claim that they are effectively blocking Americans and thus preventing them from interacting with such instruments.


It is worth noting that a similar situation occurred in October 2020. At that time, the US Commodity Futures Trading Commission filed a lawsuit against cryptocurrency exchange BitMEX and its co-founders, who were also accused of operating an unregistered trading platform and serving US customers. The case then ended with the payment of a $30 million fine - $10 million from each BitMEX crypto-exchange executive.


As alleged in the lawsuit, Binance employees and others circumvented restrictions by using VPN services that hid the location of users.

The CFTC officials also recalled that Binance was in no hurry to disclose the country of registration of the company’s main office. According to the regulator, this is to try to avoid regulatory compliance, with Binance itself allegedly failing to comply with laws aimed at detecting and preventing money laundering and terrorist financing.

Here’s a quote from the lawsuit.

Binance has never registered with the CFTC in any capacity and has ignored federal laws necessary to ensure the integrity and viability of US financial markets. Unless the court rules accordingly, the defendant is likely to continue to conduct the activities described in this complaint.

The concern in the case was that regulators had accessed correspondence from Changpen Zhao’s smartphone. Incidentally, the correspondence between Binance employees and US customers is carried out on the secure messenger Signal, which Zhao insisted on, the lawsuit alleges.


Exactly how Changpen's smartphone content was accessed is unknown. It appears to be more about hacking into the device than hacking into Signal's servers. In addition, Signal's correspondence is encrypted by default, so the scenario of accessing it from Zhao's device is more likely.


As a result, the CFTC wants to force Binance to return the proceeds of the allegedly dishonest actions it is accused of. The regulator also plans to get the fine paid and implement a ban on related trading along with registration for US residents.

Which cryptocurrencies are not considered securities

The lawsuit has found room for positives as well. In particular, the Commodity Futures Trading Commission made it clear that it considers Bitcoin, ETH, LTC, USDT and BUSD to be commodities and not securities.


Such a view goes against the position of the Securities and Exchange Commission, which sees almost all cryptocurrencies, except Bitcoin, as securities. In fact, that's why it is terrorising the blockchain industry with lawsuits over the distribution of purported securities. In December 2020, for example, similar claims were received by Ripple employees for the XRP token, and the case is still pending.

Accordingly, the Commission will no longer be as persuasive in its claims. The same goes for its chairman Gary Gensler, who in February for some reason once again referred to all cryptocurrencies as securities. Although he has no right to do such a thing, because such decisions are made by the courts one way or another.


However, representatives of the cryptocurrency industry have taken the lawsuit cautiously. As Cinneamhain Ventures partner Adam Cochran noted, “This is an attempt by the CFTC to deal a death blow to Binance.” Here’s his quote from Twitter.

And after reading it for the first time, I believe they do stand a good chance of succeeding in overthrowing the Binance empire.

What the head of cryptocurrency exchange Binance responded with

Shortly after the publication, Binance chief Changpen Zhao posted a foursome on his Twitter. By doing so, he addressed an archived tweet with plans for 2023. In it, the fourth item was the advice to “ignore FUD, fake news and attacks”.

Zhao published a new post today highlighting key points about the case. Changpen, however, stressed that a detailed response from the exchange with further details will come a little later.

In general, Chanpen said the lawsuit was “unexpected and disappointing,” with Binance having cooperated with the CFTC for more than two years. In addition, after an initial review, company officials noticed an “incomplete statement of facts” in the document and disagreed with the “characterization of many of the problems alleged in the complaint.”

Above all, Zhao commented on the topic of compliance with local law and the blocking of US citizens. Here’s the quote.

Binance has built best-in-class technology to comply with the legal framework. Binance is the first global exchange (outside the US) to implement a mandatory KYC program, and today the platform still adheres to one of the highest standards for identity verification and anti-money laundering. We block US users based on nationality through KYC, IP address including popular VPN endpoints outside the US, mobile carrier, device fingerprints, bank deposits and withdrawals, blockchain deposits and withdrawals, and credit card numbers to name a few. We know of no other company with more comprehensive and efficient systems than Binance.

Chanpen also touched on the topic of interaction with law enforcement agencies.

Binance now employs more than 750 people, many of whom have law enforcement and regulatory experience. To date, we have handled more than 55,000 requests from law enforcement agencies and have helped US authorities freeze and seize more than $125 million in 2022 and $160 million in 2023.

We intend to continue to respect and cooperate with regulators in the US and elsewhere in the world.

Zhao also added that Binance has a record number of licences and registrations worldwide. There are now 16 of them, with the number increasing.

Finally, Changpen responded to accusations that the company has accounts for trading on Binance. Although this is generally considered normal practice, as organisations need to conduct asset transactions. Here’s the quote.

Binance does not trade for profit under any circumstances and does not “manipulate” the market. Binance “trades” only in a number of ways. First of all, our revenues come in cryptocurrency. So we need to transfer them periodically to cover expenses in fiat or other cryptocurrencies. We have companies to provide liquidity for less liquid pairs. They are specifically controlled and don’t make much profit.

Personally, I have two accounts on Binance: one for Binance Card and one for my cryptosavings. I “eat my dog food” and store cryptocurrency on Binance. I also need to transfer cryptocurrency occasionally to pay my personal expenses or use them for the card.

Binance has a 90-day no-day trading rule for employees whereby they are not allowed to sell a coin within ninety days of their last purchase or vice versa. This is to prevent employees from actively trading. We also prohibit our employees from interacting with futures. We also have strict rules for anyone with access to personal information like listing data, the Launchpad platform and so on. They are not allowed to buy or sell these coins.


We believe that the development of this situation is definitely worth watching. As we can understand from Changpen Zhao's response, the crypto exchange does not agree with the regulator's position, and will therefore defend its own rightness. Whether it will succeed is up to the court, which may also take place. However, Binance clearly has enough resources for legal defense.


There are even more interesting things in our investor cryptochat. There we discuss other important events that affect digital asset rates.