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CFTC chief on Binance: “We had to send a clear message”

Rostin Behnam, director of the CFTC on Binance, “needed to intervene aggressively and to do so as quickly as possible” to stop Binance’s “continuing fraud.”

In Short

  • CFTC Chairman Rostin Behnam Speaks Out on Binance Lawsuit
  • He said the regulator “needed to intervene aggressively and do it as quickly as possible.”
  • He reiterated that Binance and his executives made an orchestrated effort to circumvent local regulations.
  • “It is an important case to take and establish a clear message for cryptocurrency exchanges.”

CFTC chief on Binance: “We had to send a clear message.” Rostin Behnam has spoken out on the lawsuit against cryptocurrency exchange Binance. In an interview on CNBC’s Squawk Box, the head of the agency in charge of regulating derivatives in the country provided some details about ongoing enforcement actions. Echoing the lawsuit, Behnam noted that this is a clear case of violation of US law.

The major cryptocurrency exchange and its CEO, Changpeng Zhao, were sued by the watchdog in federal court in Chicago on Monday. In the lawsuit, the CFTC alleges that Binance violated derivatives trading regulations. They offered cryptocurrency trading to US clients without proper registration.

The head of the Commission emphasized that these Binance executives orchestrated intentional actions to evade US law. They also didn’t want to register with regulators. Both the language of the director during the interview and that of the document seem to identify cryptocurrencies under the classification of “derivatives.”

“Over several years, we have found that Binance has been evading US laws, offering derivatives to US clients, and intentionally evading CFTC registration requirements. The case is a clear case of tax evasion. We needed to intervene aggressively and do it as quickly as possible because it was an ongoing case of fraud going back to 2019 and ongoing tax law violations.”

Rostin Behnam

CFTC wants to send a message to cryptocurrency players

They also mentioned the direct involvement of the company’s top executives in the alleged violations. In this regard, host Rebecca Quick addressed documentation cited by regulators in the complaint. The documents expose the exchange’s internal methodology and executives to intentionally evading regulations.

Specifically, Quick read an excerpt from the lawsuit citing internal messages between Zhao and former Binance chief compliance officer Samuel Lim. The two discuss urging US-based “VIP” clients to get on the platform, using VPN to bypass access controls and local regulations.

The senior executives would have communicated through the Signal messaging application, which focuses on privacy and encrypted chats. Lim was also a defendant in the CFTC lawsuit. Behnam said that Binance’s illicit offer of trading services within the US territory prompted regulators to intervene quickly to curb ongoing fraudulent activities.

The lawsuit alleges that Binance’s global exchange, a US division called Binance.US, created a system to hide its true reach and operations. They also made a concerted and deliberate effort to conceal the location of the company’s subsidiaries, with the aim of circumventing regulations in the US.

“Not having a headquarters in a country will not prevent the CFTC from coming after you. It is a critical case to take and establish a clear message for cryptocurrency exchanges and cryptocurrency participants worldwide.”

Rostin Behnam

He added that compliance actions also send a message to all players in the digital currency ecosystem.

What would be the appropriate punishment for Binance?

The Binance CEO spoke out Monday in a statement to defend himself and the exchange from the CFTC’s allegations. In the post, the company called the lawsuit “unexpected and disappointing” and rejected the characterization of the facts.

After initial review, the complaint appears to contain an incomplete listing of the facts. And we disagree with the characterization of many of the issues alleged in the complaint,” Zhao said.

Binance has been under the scrutiny of US regulators for some time now. The exchange even commented on these investigations in February. He expected to pay fines to “make amends” for past violations.

The CFTC asks the court to bar Binance from further violations, civil money penalties, trading, and registration bans. Some observers have suggested that these measures could include a ban preventing the company from adequately registering in the US.

When asked by the Squawk Box host, Behnam did not provide precise details about “what would be an appropriate punishment” if the Binance lawsuit went “all the way.” Instead, the director limited himself to reiterating the CFTC’s request to the court and added that the agency feels “confident with the case.”

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