The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against the Binance cryptocurrency exchange and the CEO, Changpeng Zhao. The lawsuit alleges that Binance and its CEO were engaged in “numerous violations” of the regulatory framework. The CFTC noted also imposed charges against Binance for running an unregistered digital asset derivatives exchange.

CFTC sues Binance for numerous violations

The agency announced the lawsuit on Monday, saying the case was before a district court in Illinois. The CFTC added that Binance, the largest cryptocurrency exchange globally by trading volumes, operated as “a designated contract market or swap execution facility” by processing derivatives transactions without registration.

The CFTC has imposed charges on Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited. Zhao used the three entities and related firms to run the trading platform through “an intentionally opaque common enterprise.”

The CFTC’s investigations against Binance started in 2021. At the time, insider sources had informed Bloomberg that the derivatives regulator was investigating the exchanges to determine whether they allowed US citizens to trade on the platform without the appropriate registration.

CFTC accuses Binance of non-compliance

The complaint by the CFTC alleged that from July 2019, Binance supposedly barred US customers from trading on the platform. The CFTC instructed Binance to use the best methods to avoid compliance controls. The process was targeted at the “commercially valuable US-based VIP customers.”

The agency also said that since July 2019, Binance has failed to verify the identity of customers. Moreover, the exchange failed to use basic compliance procedures to prevent and detect illegal money usage, such as terrorism finance and money laundering.

In the complaint, the CFTC accused Binance of directing employees to discuss control evasion for US-based clients through a messaging application that automatically deleted chats. This ensured there was no evidence of the efforts used by Binance to continue extending services to US clients.

The CFTC Enforcement Division Principal Deputy Director and Chief Counsel, Gretchen Lowe, said that the evasion of US law by Binance was the key reason behind the lawsuit. Lowe added that the emails and chats by Binance showed that its efforts to achieve regulatory compliance were fake, and Binance prioritized compliance over following the law.

The lawsuit against Binance by the CFTC comes a few days after Coinbase, the largest cryptocurrency exchange in the United States, revealed that it obtained a Wells notice from the US Securities and Exchange Commission (SEC). The notice suggests a possible regulatory action by the SEC.

Last year, there were reports that the SEC was also investigating Binance. The reports suggested that the SEC investigated the link between Binance US and two market makers and trading affiliates known as Sigma Chain AG and Merit Peak Limited.

Over the years, the SEC has taken regulatory action against firms offering crypto-related services. The SEC chair, Gary Gensler, believes that most cryptocurrencies in the market are securities.