Crypto Quill

Binance, the world’s largest cryptocurrency exchange, has reached a settlement agreement with the U.S. Commodity Futures Trading Commission (CFTC) over allegations of operating an illegal digital asset derivatives exchange and evading federal law. The settlement, which was approved by a U.S. court on Monday, requires Binance to pay $2.7 billion in disgorgement and civil monetary penalties, and its founder and CEO Changpeng Zhao to pay $150 million in personal fines. The CFTC also imposed permanent trading and registration bans on Binance and Zhao, and ordered them to implement an effective anti-money laundering program and comply with U.S. economic sanctions.

Binance Accused of Regulatory Arbitrage and Money Laundering

The CFTC filed a civil enforcement action against Binance and Zhao in March 2023, charging them with numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations. The complaint alleged that Binance operated a centralized digital asset trading platform that offered futures, options, and swaps on cryptocurrencies such as bitcoin, ether, and litecoin, without registering with the CFTC or complying with its rules. The complaint also accused Binance of willfully evading U.S. law by using an intentionally opaque corporate structure and a strategy of regulatory arbitrage to avoid scrutiny and oversight. The CFTC claimed that Binance allowed U.S. customers to access its platform through virtual private networks (VPNs) and other methods, and failed to implement an effective anti-money laundering program and to adhere to U.S. economic sanctions.

According to the CFTC, Binance’s illegal conduct resulted in billions of dollars in illicit profits for the exchange and its owners, while exposing U.S. customers and the public to significant risks of fraud, manipulation, and abuse. The CFTC also alleged that Binance’s activities undermined the integrity and transparency of the digital asset market, and threatened the stability and security of the U.S. financial system.

Binance Admits Wrongdoing and Agrees to Cooperate with Authorities

In the settlement agreement, Binance and Zhao admitted to the CFTC’s allegations and agreed to cooperate with the agency and other authorities in any ongoing or future investigations or litigation. Binance and Zhao also agreed to forfeit any assets or funds that were obtained or derived from their violations of the CEA and CFTC regulations, and to provide full and complete restitution to any customers who suffered losses or damages as a result of their misconduct. Binance and Zhao further agreed to retain an independent monitor to oversee their compliance with the terms of the settlement and the CEA and CFTC regulations, and to report any violations or issues to the CFTC.

The settlement agreement, which was approved by Judge John Z. Lee of the U.S. District Court for the Northern District of Illinois, marks the end of a long-running legal battle between Binance and the CFTC, and one of the largest penalties ever imposed by the agency. CFTC Chairman Rostin Behnam said in a statement that the settlement demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors. He added that he has been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market.

SEC Delays Decision on ARK ETF

Meanwhile, the U.S. Securities and Exchange Commission (SEC) announced on Monday that it has delayed its decision on whether to approve or deny the application of ARK Invest, a leading investment management firm, to launch an exchange-traded fund (ETF) that would invest in companies involved in the innovation of blockchain technology and digital assets. The SEC said that it needs more time to consider the proposal and the comments received from the public, and that it will make a final decision by February 28, 2024.

The ARK Innovation ETF, which was filed by ARK Invest in August 2023, seeks to track the performance of the Solactive Blockchain Innovation Index, a market capitalization-weighted index that consists of companies that are developing or utilizing blockchain technology or digital assets, or that are facilitating the adoption of these technologies. The ETF would invest at least 80% of its assets in the securities that comprise the index, and may also invest in other companies that are not included in the index but that are expected to benefit from the innovation of blockchain technology and digital assets. The ETF would also have the ability to invest up to 20% of its assets in cryptocurrencies, such as bitcoin and ether, through a custodian or a trust that holds these assets.

The ARK Innovation ETF is one of several proposals that have been submitted to the SEC for approval, as the demand for exposure to the digital asset market continues to grow among investors. However, the SEC has not yet approved any ETF that directly or indirectly invests in cryptocurrencies, citing concerns over market manipulation, fraud, custody, valuation, liquidity, and investor protection. The SEC has also recently issued warnings and enforcement actions against some platforms and products that offer crypto-related services or investments, such as Coinbase, BitConnect, and Bitwise.