CFTC sues crypto exchange Binance, CEO over U.S. securities violations

Yahoo Finance crypto reporter David Hollerith discusses the lawsuit that the CFTC has brought against popular crypto exchange Binance over U.S. securities violations, and details its implications to the crypto market.

Video transcript

- Some big news today, though, in the crypto space as federal regulators sue the world's largest crypto exchange, Binance, and its CEO. Yahoo Finance's David Hollerith here with more on this story. David, good to see you. What are we learning?

DAVID HOLLERITH: Hey, Dave. So the CFTC is basically saying in this legal complaint that Binance and its co-founders and CEO CZ violated US federal securities laws by routinely offering crypto derivative products to American investors. So to paraphrase the lawsuit, what it said exactly, you know, this quote comes from the CFTC's Chief Counsel Gretchen Lowe. And she said, Binance own emails and chat logs, which they had taken possession over, reflect that Binance's compliance efforts have been a sham and Binance deliberately has chosen over and over again to place profits over following the law.

So what's going on here is that Binance itself-- there's Binance US, which actually does operate in the US. But Binance has not ever operated in the US. It's never been regulated as a US entity. And it's routinely offered crypto-based derivative products to US investors. So just some things from the report, or the complaint, that are worth pointing out is that Binance has sort of at least allegedly been dodging efforts since 2017 since the launch of its platform. And it's sort of calculated this as a way to state that it's purportedly blocking or restricting customers located in the US and then sort of doing another thing.

One example was in August 2020. The CFTC alleges, citing documents and internal chat logs, that Binance had about 16% of its accounts from US customers and in August 2020 made about $63 million in total from derivatives trading volume. It also in 2019 made sort of a public show of reducing its-- or trying to more actively restrict US customers. And then behind closed doors, what it seems is that CZ, the CEO, informed Binance's chief compliance officer to inform other people in the company to come up with ways to make it so that certain entities could still interact with the platform.

And in particular, what these entities are-- they're named as VIPs, or important traders I guess. But these are probably institutions from what we think just given the amount of trading volume that's coming from these people. That being said, they could be a massive individual that is literally responsible for influencing the crypto market in such a way. But Binance's response to this has been that it's been surprising and disappointing. So not anything new, but definitely something that we'll want to pay more attention to as regulation and lawsuits in the crypto space heat up.

- Indeed. Keep us up to date on this one. David Hollerith there with us. Thanks so much.