Binance and CZ Hit with $2.85 Billion Penalty in CFTC Settlement

A U.S. court has issued an order requiring Binance to pay a staggering $2.7 billion, with its former CEO, Changpeng "CZ" Zhao, also facing a $150 million penalty.

In a historic legal ruling, a United States court has issued a monumental order against cryptocurrency exchange Binance and its former CEO, Changpeng "CZ" Zhao. The court has mandated that Binance pay an astonishing $2.7 billion, while CZ himself is required to pay $150 million to the Commodity Futures Trading Commission (CFTC). This groundbreaking case comes as a result of the exchange and its former CEO's violations of the Commodity Exchange Act (CEA) and CFTC regulations, marking a significant moment in the ongoing regulatory scrutiny of cryptocurrency in the United States.

Meanwhile, in a persistent pursuit of regulatory clarity for cryptocurrencies, Coinbase, one of the United States' leading cryptocurrency exchanges, finds itself in a legal battle with the United States Securities and Exchange Commission (SEC). Following the SEC's rejection of Coinbase's petition for rulemaking on cryptocurrency, the exchange promptly appealed the decision, setting the stage for a high-stakes showdown between the crypto industry and the SEC.

Binance and Former CEO CZ Ordered to Pay $2.85 Billion to U.S. Regulators in Historic Settlement

In a landmark ruling, the United States District Court for the Northern District of Illinois has issued a judgment against cryptocurrency exchange Binance and its former CEO, Changpeng "CZ" Zhao. The judgment mandates that Binance pay a staggering $2.7 billion, while CZ is required to pay $150 million to the Commodity Futures Trading Commission (CFTC). This monumental case represents a significant moment in the ever-evolving landscape of cryptocurrency regulation in the United States.

The culmination of this case was formally announced on Dec. 18 by the CFTC, which had initiated enforcement proceedings against Binance and CZ back in November. The court's decision declared that both Zhao and Binance had violated the Commodity Exchange Act (CEA) and CFTC regulations, resulting in substantial penalties and disgorgements.

This legal saga began when the CFTC filed a lawsuit against CZ and Binance on Mar. 27, accusing them of evading federal law and operating an illegal derivatives exchange. Over the course of several months, the regulatory bodies in the United States, including the U.S. Department of Justice and the Treasury Department, worked together to bring Binance and its former CEO to justice.

On Nov. 21, a pivotal moment occurred when CZ agreed to step down from his role as CEO of Binance, signaling a significant change in the leadership of the exchange. Simultaneously, CZ pleaded guilty to multiple civil charges and one criminal charge related to Anti-Money Laundering laws, marking a critical development in the legal proceedings.

On Dec. 7, a further blow was dealt to CZ when he was ordered to remain in the United States until his sentencing date, set for Feb. 23, 2024. The looming possibility of an 18-month prison sentence on money laundering charges has added considerable weight to the case, and CZ has agreed not to appeal any sentence up to that length.

As part of the comprehensive settlement, both CZ and Binance have committed to implementing enhanced Know Your Customer (KYC) measures on the exchange. Furthermore, Binance will be required to establish a formalized corporate governance structure, including a board of directors with independent members, a compliance committee, and an audit committee. These measures aim to ensure greater transparency and compliance with regulatory requirements.

The court also took action against Samuel Lim, Binance's former chief compliance officer, imposing a $1.5 million civil monetary penalty. Lim was found to have aided and abetted Binance's violations and engaged in activities designed to willfully evade or attempt to evade U.S. law.

Following CZ's departure, Binance underwent a leadership transition, with Richard Teng assuming the role of CEO. In a recent interview on Dec. 5, Teng assured investors that Binance was now a "totally different" entity and committed to closing any gaps in compliance. He emphasized that the exchange was heavily invested in achieving compliance with regulatory agencies from around the world.

Over the past 18 months, Binance has faced mounting regulatory challenges, leading to the termination or significant adjustments of its core services in multiple jurisdictions, including the Netherlands, Cyprus, Australia, and Canada.

The outcome of this high-profile case serves as a landmark moment in the cryptocurrency industry's ongoing interaction with regulatory authorities. It underscores the increasing scrutiny and accountability faced by cryptocurrency exchanges and their executives as they navigate the complex and evolving regulatory landscape in the United States and beyond.

Coinbase Appeals SEC Denial in Ongoing Effort to Establish Clear Cryptocurrency Regulations

Coinbase, one of the leading cryptocurrency exchanges in the United States, is intensifying its efforts to establish comprehensive legislation concerning cryptocurrencies used as securities. Following the SEC’s rejection of Coinbase's petition for rulemaking on cryptocurrency on Dec. 15, the crypto exchange promptly appealed the decision on the same day, marking a significant development in the ongoing regulatory battle between the cryptocurrency industry and the SEC.

Coinbase's Chief Legal Officer, Paul Grewal, wasted no time in promising swift action in response to the SEC's denial. On Dec. 18, the U.S. Third District Court of Appeals issued an order directing the SEC to submit the record of its decision by Jan. 24, 2024, signaling a clear commitment to resolving this matter expeditiously.

In its appeal, Coinbase meticulously detailed the protracted process it undertook to compel the SEC to respond to its petition. The exchange argued that the SEC's denial of its petition was "arbitrary and capricious, an abuse of discretion, and contrary to law, in violation of the Administrative Procedure Act (APA)." Coinbase's legal team further emphasized:

"The Commission's refusal to engage in rulemaking, even while it continues a campaign of regulation by enforcement against Coinbase and others that exceeds its statutory authority, flouts the APA and fundamental principles of fairness it embodies."

The SEC's denial letter, which initially sparked this legal battle, criticized Coinbase's petition for lacking the "text or the substance of any proposed rule," a requirement for submitting petitions. Additionally, the SEC contested Coinbase's assertion that existing regulations were "unworkable" and asserted the agency's discretion over the priority and timing of regulation. The SEC's denial was met with criticism from various quarters within the cryptocurrency community.

SEC Chair Gary Gensler subsequently released a statement that echoed the agency's official denial, reinforcing the regulatory stance of the SEC in this ongoing dispute.

Based in San Francisco, Coinbase has actively championed the cryptocurrency industry's interests through a range of initiatives, including political donations, lobbying efforts, and public actions. However, these efforts have not shielded the exchange from regulatory scrutiny. In June, the SEC filed a lawsuit against Coinbase, alleging securities violations, further underscoring the regulatory tension between the cryptocurrency industry and the SEC.

The appeal filed by Coinbase represents a pivotal moment in the broader conversation surrounding cryptocurrency regulation in the United States. It underscores the exchange's commitment to establishing clear and fair rules for the industry while navigating the complex and evolving regulatory landscape. As the legal battle unfolds, it remains to be seen how this dispute will influence the future of cryptocurrency regulation in the United States and its impact on market participants and investors alike.