Judge Manish Shah of the U.S. District Court for the Northern District of Illinois has rendered a significant ruling in the legal matter, directing cryptocurrency exchange Binance and its former CEO, Changpeng “CZ” Zhao, to pay the Commodity Futures Trading Commission (CFTC) an astounding $2.85 billion.
The CFTC, in its press release dated December 18, announced that the court had given its approval to the previously disclosed settlement. The consent order for permanent injunction, civil monetary penalty, and equitable relief was entered against Changpeng Zhao and Binance.
In addition, Zhao and Binance are required by the court order to furnish certifications concerning the presence, implementation, and effectiveness of Binance’s enhanced compliance controls. Additionally, after implementing all KYC policies, the court ordered Binance to offboard any accounts that did not meet compliance standards.
In addition, the court order requires Binance to set up a corporate governance framework that consists of an audit committee, a compliance committee, and a board of directors made up of independent members.
The Commodity Exchange Act (CEA) and CFTC regulations were broken by both Zhao and Binance, according to the court’s findings, which resulted in a sizable financial penalty. The CFTC said that this order concludes an enforcement action that it began in November. Changpeng Zhao has been hit with a personal fine of $150 million in civil penalties. Comparatively, Binance must forfeit $1.35 billion in improperly obtained transaction fees and pay the CFTC an additional $1.35 billion in penalties.
In a related development, former Chief Compliance Officer Samuel Lim must pay a $1.5 million civil monetary penalty for knowingly participating in activities outside of the United States to evade U.S. law and aiding and abetting Binance’s violations.
CFTC Settlement Highlights Violations by Binance and Leadership
In response to the CFTC’s enforcement action, Binance and its leadership have engaged in numerous violations and egregious practices, which are highlighted in this approved statement.
The court determined that Binance actively sought out US clients, including quantitative trading firms, to enable digital asset derivative transactions on its platform directly under Zhao’s supervision. Furthermore, by allowing at least two prime brokers to create “sub-accounts” that are free from Binance’s KYC requirements, Binance broke its terms of use. This blatantly violated regulatory compliance by enabling direct trading on the platform for US customers.
Although Zhao and Binance were aware of the legal requirements in the United States, they chose to disobey them and hide the fact that they had American customers on their platform. The court order also disclosed that Zhao and other senior management members of Binance actively encouraged breaking US law by giving US customers instructions on how to get around compliance checks.
Conclusion of CFTC Case: CZ Steps Down, Binance Settles for $2.85 Billion
The CFTC and CZ, the former CEO of Binance, have reached a settlement that ends the long-running legal dispute. On March 27, the CFTC filed a lawsuit against CZ and Binance, alleging that they were running an unauthorized derivatives exchange and circumventing federal law.
CZ agreed to resign as CEO of Binance as part of the settlement, which was a big step forward for Richard Teng’s candidacy as CZ’s successor. This decision was made on November 21 as a part of a larger settlement that also included the CFTC, the Treasury Department, and the U.S. Department of Justice. Zhao entered guilty pleas to several civil charges and a criminal charge pertaining to anti-money laundering legislation on the same day.
Now that the settlement has been approved, Binance will give the CFTC a sizeable $2.85 billion. This is among the biggest fines ever levied against a cryptocurrency exchange.
In a related development, CZ was ordered to stay in the country through his February 23, 2024, sentencing date on December 7. On suspicion of money laundering, he could spend up to 18 months behind bars. CZ has consented to refrain from appealing any sentence for the duration of this period as part of the settlement terms.