In March the CFTC sued Binance, its CEO Changpeng Zhao (CZ) and Samuel Lim, Binance’s former chief compliance officer, for “willful evasion” of U.S. law, saying:
“Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law.”
Zhao is alleged to have been responsible for circumventing U.S. laws, including devising a secret plot to instruct U.S.-based VIP customers to evade Binance’s compliance controls and instructing Binance employees to ensure all communications about their control subversion is destroyed.
In the litigation against Binance CFTC seeks “disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.”
Binance is also currently under investigation by the SEC, Department of Justice and a number of other authorities.
It is clear that the exchange will do its utmost not to lose the American market. One of the possible measures is cutting Changpeng Zhao’s share in Binance.US. which, by some estimates, is hovering at around 90%.
The Information recently reported, referring to two unnamed persons familiar with the matter, that CZ has been trying to sell at least some of his stake since last summer. According to one of these persons, after being sued by the CFTC, Binance.US executives have discussed how lowering CZ’s stake might help improve the company's relations with U.S. regulators. The company’s leaders assume that because CZ, the majority owner of the company, was sued, the company may not be able to acquire certain licenses that it wants to have in the USA.
Lately, U.S. regulators have been particularly harsh on crypto exchanges. Another 'drama' is currently underway between SEC and Coinbase. Right now the SEC is considering suing the exchange for violation of securities laws, while Coinbase is asking for a proper regulatory framework (and even trying to sue the regulator).
Another hypothesis suggests that the attack by U.S. regulators might be connected to Binance and CZ's links to China, as the relationship between the two countries worsens. According to a Financial Times report, CZ and others holding senior positions repeatedly instructed Binance employees to hide the company’s Chinese presence. Binance rejects being closely connected to China at the moment.
In 2022 Binance.US raised over $200 million in its first external funding round, giving it a valuation of $4.5 billion. The company had been working on the deal since 2021 in a quest to make an initial public offering (IPO) and get more legitimacy in the U.S. market. Here also, the ultimate control of CZ over the company was the main problem for potential investors.
While the main Binance remains the largest exchange in the world, Binance.US lags behind its competitors in the U.S. by trade volumes and the number of licenses. Will CZ abandon his control over the entity so Binance.US becomes truly independent from Binance? Under its current governance system, it is hard to believe, but we will continue to Observe.