The U.S. Commodity Futures Trading Commission (CFTC) filed a civil lawsuit against Binance, the world’s largest cryptocurrency exchange, and CEO Changpeng Zhao on charges of violating regulations related to derivatives on March 27, 2023.
The lawsuit alleges that Binance allowed U.S. residents to trade derivatives without registering with the CFTC, and also failed to report the trades. The lawsuit seeks monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations.
Binance was founded in Shanghai, China in 2017 and currently has offices in Singapore. It also opened an office in San Francisco in 2019. Binance says it has no separate headquarters. The exchange has been embroiled in controversies and legal issues over the past few years, and this latest lawsuit is just the latest in a series of challenges for the company.
Changpeng Zhao, also known as CZ, has been the public face of Binance since its inception. He has consistently received media attention, but his girlfriend, He Yi, has only occasionally appeared in the media. Yi is a key figure in the cryptocurrency industry in China and is known as the “Bitcoin First Lady.”
He Yi was born in October 1986 in Sichuan Province, China. She majored in Psychology at the University of the Chinese Academy of Sciences (UCAS; Chinese: 中国科学院大学), one of the top academic institutions for natural sciences in China. After graduating from college, she worked as a psychological counselor and university lecturer. She then became the host of a travel satellite channel, where she hosted TV programs such as “beautiful destinations,” “anywhere far away,” and “the world is beautiful.”
In 2013, He Yi joined OKCoin as a co-founder. The co-founders of OKCoin were Xu Mingxing, Changpeng Zhao, and Yi. OKCoin is now known as OKX. Yi earned the nickname “Bitcoin First Lady” in China during her time at OKCoin. In an interview with the Chinese media outlet Phoenix, Yi said, “It is my duty to spread Bitcoin to the masses.”
At the end of 2015, Yi left OKCoin to join Isha Technology as vice president. Isha Technology was a big tech company worth around 20 billion yuan ($3 billion) at the time. At Isha Technology, she oversaw management and product markets.
He Yi founded Binance with Changpeng Zhao in August 2017 and serves as CMO. Binance listed 18 tokens in the same month and started serving users in over 180 countries. On September 1, 2017, Binance received a $10 million angel investment from China’s Fancheng Capital and Blackhole Capital. Since then, Binance has grown rapidly.
In 2019, Yi’s WeChat personal account was blocked after the Chinese authorities announced a ban on cryptocurrencies. The official WeChat account and channel of Binance Exchange were also closed. At the time, Tencent, which operates WeChat, suspended many cryptocurrency-related channels.
He Yi reappeared in public in August 2022 when she took office as the CEO of Binance Labs. Binance Labs is a venture capital (VC) firm affiliated with Binance that manages a total of $7.5 billion in assets. It is reported to have recorded a return on investment of about 2,100% since its launch in 2018. Binance Labs, led by He Yi, has the nature of simultaneously leading the project from investment and incubation to listing, which raises the issue of conflict of interest.
In mid-December 2022, messages that Yi communicated with internal employees were revealed. At that time, the exchange had been releasing proof of reserves for a long time. Binance was facing scrutiny over whether it was adequately holding its users’ assets.
In response to the allegations, He Yi posted a statement on her official WeChat account denying the accusations and stating that the exchange had always maintained adequate reserves. She also pledged to work with regulators to ensure the exchange was in compliance with all applicable laws and regulations.
The CFTC’s recent lawsuit against Binance and its CEO Changpeng Zhao has added to the company’s woes. The regulator has accused Binance of violating regulations related to derivatives, alleging that the exchange allowed US customers to trade cryptocurrency derivatives without registering with the agency. The CFTC has also accused Zhao of engaging in illegal wash trading, a practice in which a trader simultaneously buys and sells the same asset to create the illusion of trading activity.
Binance has denied the allegations and vowed to defend itself against the lawsuit. In a statement posted on its website, the company said it was “disappointed” by the CFTC’s actions and that it had always acted in compliance with all applicable laws and regulations.
The lawsuit is the latest blow to Binance’s reputation, which has been tarnished by a string of regulatory challenges and controversies. In recent months, the exchange has faced scrutiny from regulators in countries such as the UK, Japan, and Thailand over allegations of operating without proper licenses and failing to comply with anti-money laundering rules.
Binance has responded to the regulatory challenges by announcing a series of measures aimed at improving its compliance practices. The exchange has pledged to increase its regulatory compliance team and implement new policies and procedures to ensure that it is in compliance with all applicable laws and regulations.
The company has also announced plans to launch a new platform specifically for US customers, which will be fully regulated by US regulators. The platform, which is expected to launch later this year, will offer trading in cryptocurrencies and other digital assets but will be subject to US regulations and oversight.
Despite the challenges, Binance remains the world’s largest cryptocurrency exchange by trading volume. The company has a market capitalization of over $30 billion and is widely regarded as one of the most influential players in the cryptocurrency industry.
However, the regulatory challenges facing Binance and other cryptocurrency exchanges highlight the need for greater oversight and regulation of the industry. While cryptocurrencies offer many potential benefits, such as increased financial inclusion and greater efficiency in payments and remittances, they also present significant risks, including money laundering, fraud, and market manipulation.
As the cryptocurrency industry continues to evolve and mature, it will be important for regulators and industry players to work together to ensure that the sector operates in a safe and responsible manner. The CFTC’s lawsuit against Binance is just the latest example of the need for greater oversight and regulation in the cryptocurrency industry, and it is likely that we will see more such actions in the future as regulators seek to protect consumers and maintain the integrity of financial markets.
Read more:
- Breaking: CFTC Files Complaint Against Binance And Founder Over Alleged Violation Of US Regulations
- CFTC Declares Bitcoin, Ethereum, And Litecoin As Commodities In Binance Indictment, Contradicting SEC’s View On Security Classification
- Binance Saw An Increase In Withdrawals Following The CFTC’s Lawsuit Against The Exchange