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In a significant legal development, Judge Manish Shah of the U.S. District Court for the Northern District of Illinois has issued a verdict ordering cryptocurrency exchange Binance and its former CEO, Changpeng “CZ” Zhao, to pay a staggering $2.85 billion to the Commodity Futures Trading Commission (CFTC).
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.
Moreover, the court order imposes additional obligations on Zhao and Binance, requiring them to provide certifications regarding the existence, application, and efficacy of Binance’s enhanced compliance controls. The court also enjoined Binance to offboard any account failing to meet compliance standards after applying all KYC policies.
Furthermore, the court order mandates that Binance implement a corporate governance structure, including a Board of Directors with independent members, a Compliance Committee, and an Audit Committee.
According to the CFTC’s statement, this order marks the conclusion of an enforcement action initiated by the CFTC in November, as the court’s findings state that both Zhao and Binance violated the Commodity Exchange Act (CEA) and CFTC regulations, resulting in a substantial financial penalty. Changpeng Zhao has been personally slapped with a $150 million civil monetary penalty. In comparison, Binance is mandated to disgorge $1.35 billion of ill-gotten transaction fees and pay an additional $1.35 billion as a penalty to the CFTC.
In a related development, former Chief Compliance Officer Samuel Lim is required to pay a $1.5 million civil monetary penalty for aiding and abetting Binance’s violations and engaging in activities outside the U.S. to evade U.S. law deliberately.
CFTC Settlement Highlights Violations by Binance and Leadership
This approved statement, in response to the CFTC’s enforcement action, highlights numerous violations and egregious practices conducted by Binance and its leadership.
The court found that Binance, under the direction of Zhao, actively solicited customers in the United States, including quantitative trading firms, facilitating digital asset derivative transactions directly on its platform. Moreover, Binance violated its Terms of Use by permitting at least two prime brokers to open “sub-accounts” exempt from Binance’s KYC procedures. This allowed U.S. customers to engage in direct trading on the platform, a clear breach of regulatory compliance.
Despite being aware of U.S. regulatory requirements, Zhao and Binance deliberately ignored them and concealed the presence of U.S. customers on their platform. The court order also revealed that members of Binance’s senior management, including Zhao, actively facilitated violations of U.S. law by instructing U.S. customers to evade compliance controls.
Conclusion of CFTC Case: CZ Steps Down, Binance Settles for $2.85 Billion
The long-standing legal battle between the CFTC and CZ, the ex-CEO of Binance, has come to a close with the approval of a settlement. The CFTC initiated legal proceedings on March 27, accusing CZ and Binance of evading federal law and operating an illegal derivatives exchange.
As part of the settlement, CZ agreed to step down from his position at the helm of Binance, marking a significant development in the case of Richard Teng being his successor. This decision was reached on November 21 as part of a broader settlement with the U.S. Department of Justice and the Treasury Department, in addition to the CFTC. On the same day, Zhao pleaded guilty to various civil charges and a criminal charge related to anti-money laundering laws.
The settlement, which has now received approval, involves Binance paying a substantial $2.85 billion to the CFTC. This marks one of the largest penalties imposed on a cryptocurrency exchange.
In a related development, on December 7, CZ was mandated to remain in the U.S. until his sentencing date of February 23, 2024. He faces potential imprisonment of up to 18 months on money laundering charges. As part of the settlement terms, CZ has agreed not to appeal any sentence within this specified length.
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