Federal regulators sued Binance, the world’s largest cryptocurrency exchange, and two of its senior executives on Monday, alleging that in wooing business from American investors, they had chosen to “knowingly disregard” laws governing certain U.S. financial markets.
In a suit filed in a Chicago federal court, the Commodity Futures Trading Commission said Binance’s founder, Changpeng Zhao, and its former chief compliance officer, Samuel Lim, worked together to attract trading customers who were based in the United States despite the fact that Binance did not have permission to operate in the country.
The regulators said Mr. Zhao and Mr. Lim relied on an “opaque web of corporate entities” to direct business back to a central operation that was controlled by Mr. Zhao. They even helped U.S.-based crypto traders hide their real locations using shell companies, according to the C.F.T.C.
“For years, Binance knew they were violating C.F.T.C. rules, working actively to both keep the money flowing and avoid compliance,” the agency’s chairman, Rostin Behnam, said in a statement announcing the filing of the lawsuit. “This should be a warning to anyone in the digital asset world that the C.F.T.C. will not tolerate willful avoidance of U.S. law.”
A Binance spokesman did not immediately respond to a request for comment.
The C.F.T.C. is seeking fines, according to Monday’s filing, though no amounts were specified. The regulator wants to ban the company, as well as Mr. Zhao and Mr. Lim and any direct associates, from participating in the trading of commodities in markets governed by U.S. exchange laws.
The civil suit against Binance is the latest in a string of blows to the cryptocurrency industry over the past year, including the collapse of what was the second largest cryptocurrency exchange, FTX, in November. Its founder, Sam Bankman-Fried, now faces securities fraud charges by federal prosecutors and regulators.
Though Mr. Zhao and Mr. Bankman-Fried were considered rivals, there was no real contest for business between the two companies. Binance dwarfed FTX. Yet Mr. Zhao was long seen as the more elusive foil to Mr. Bankman-Fried, who actively courted U.S. politicians and regulators. Federal authorities have been investigating apparent lapses in Binance’s anti-money laundering controls as part of a wider inquiry of the cryptocurrency industry.
The C.F.T.C., in its complaint, said that Binance had actively sought to grow its business by soliciting U.S. customers but “has never been registered with the C.F.T.C. in any capacity and has disregarded federal laws essential to the integrity and vitality of the U.S. financial markets.”
The filing noted that Mr. Zhao had avoided designating a corporate headquarters for Binance and cited an internal presentation that had been given by Mr. Zhao explaining that his refusal to say where Binance was based helped it avoid scrutiny from any particular country’s legal authorities.
The lawsuit appears to be an attempt by the C.F.T.C. to assert its authority over the crypto trading world at a time that the regulator has found itself in something of a competition with the Securities and Exchange Commission. The S.E.C. has particularly been active in bringing enforcement actions against crypto firms for not registering digital assets as investment products before offering them to sale to the public.
Just the other day, Coinbase, a U.S. regulated crypto exchange, said it had received an official notification from the S.E.C. that the agency was planning on bringing an enforcement action against the company.
The S.E.C. declined to comment on Binance.
The C.F.T.C. said that Binance had 60 employees in the United States and was continuing to hire. It said the exchange had recruited U.S. customers by relying on what the company called “Binance Angels” to do its bidding. The lawsuit said the company’s U.S. recruiters were compensated for their efforts by receiving benefits “such as invitations to events and Binance swag.”
The regulator said that about 19 percent of Binance’s trading revenue had come from U.S. customers.
