Key Points of the CFTC Lawsuit Against Binance and Changpeng Zhao

Original: 《IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF ILLINOIS》

Compiled by: Linqi, ChainCatcher

The plaintiff Commodity Futures Trading Commission ("CFTC" or "Commission"), an independent federal agency, brings this action against defendants Changpeng Zhao ("Zhao"), Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited (collectively referred to as "Binance" or "Binance Platform"), and Samuel Lim ("Lim") (collectively referred to as "Defendants") with the following allegations:

1. Binance is the world's largest centralized digital asset exchange, composed of multiple opaque corporate entities ultimately controlled by Binance CEO Changpeng Zhao. A significant portion of Binance's trading volume and profits comes from the United States, including spot and derivatives trading of digital assets involving commodities.

2. Since July 2019, under Zhao's guidance and control, and with Lim's intentional and substantial assistance, Binance began soliciting and accepting orders from U.S. customers, accepting margin, and providing trading facilities for digital asset futures, options, swaps, and leveraged retail commodity trading involving commodities such as Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC).

3. Since the platform's launch in 2017, Binance has employed a carefully orchestrated phased approach to expand its market share in the United States, despite publicly stating attempts to block or limit U.S. customers' access to its platform. Binance's initial strategy targeting the U.S. focused on soliciting retail customers. In later phases, Binance increasingly relied on personnel and vendors in the U.S. and actively cultivated profitable and commercially significant "VIP" customers, including institutional clients located in the U.S.

4. The defendants ignored applicable federal laws while encouraging Binance's U.S. customer base, as doing so was profitable for them. For example, according to Binance's August 2020 documents, the platform earned $63 million in fees from derivatives trading, with approximately 16% of accounts identified by Binance as being located in the U.S. By May 2021, Binance's monthly revenue from derivatives trading had increased to $1.14 billion. Binance prioritized commercial success over compliance with U.S. laws.

5. Binance intentionally concealed the identity and location of the entities operating the trading platform. For instance, Binance's "Terms of Use" claim to be a contract between users and "Binance Operator," a term that lacks specific meaning. During the relevant period, Binance had offices in locations such as Singapore, Malta, Dubai, and Tokyo, but intentionally did not disclose the location of its executive offices. Instead, Zhao stated that Binance's headquarters is wherever he is at any given time, reflecting a deliberate strategy to evade regulation.

6. Zhao, Lim, and other senior executives of Binance failed to properly oversee Binance's activities and actively encouraged violations of U.S. laws, including assisting and guiding U.S.-based customers in circumventing compliance controls implemented by Binance. Binance and its executives, employees, and agents instructed U.S. customers to use virtual private networks (VPNs) to conceal their locations; allowed customers who had not submitted identity and location verification to continue trading on the platform after announcing a ban on such practices; and guided VIP customers in the U.S. to open Binance accounts under newly formed shell companies to evade Binance's compliance controls.

7. Although Binance relied on U.S.-based customers to generate revenue and provide liquidity for its various markets, Binance has never registered with the CFTC and has ignored the federal laws necessary for the integrity and vitality of U.S. financial markets, including laws requiring the implementation of controls to prevent and detect money laundering and terrorist financing.

8. During the relevant period, through the operation of the Binance platform, the defendants Binance, with the assistance of Lim and Zhao, violated core provisions of the CEA and regulations.

9. Unless restrained and enjoined by the court, the defendants may continue to engage in the conduct and similar conduct described in this action.

10. Therefore, the CFTC brings this action under Section 6c of the Commodity Exchange Act to stop the defendants' illegal conduct and compel their compliance with the law. Additionally, the CFTC seeks civil monetary penalties and remedial ancillary relief, including but not limited to trading and registration bans, restitution, interest, and any other relief that the court may deem necessary and appropriate.