n a groundbreaking legal development, Judge Manish Shah of the U.S. District Court for the Northern District of Illinois has approved a settlement that requires cryptocurrency exchange Binance and its former CEO, Changpeng "CZ" Zhao, to pay a staggering $2.85 billion to the Commodity Futures Trading Commission (CFTC). This verdict marks a significant milestone in the cryptocurrency industry and has far-reaching implications.
The Verdict: Binance and CZ's Financial Obligations
The CFTC, in its press release dated December 18, announced the court's approval of the settlement. Under the terms of the settlement, Binance is required to pay $1.5 billion to the CFTC, while CZ is liable for a $150 million fine. These substantial financial penalties highlight the seriousness of the violations committed by Binance and its leadership.
Additional Obligations Imposed on Binance and CZ
In addition to the monetary penalties, the court order also imposes further obligations on Binance and CZ. They are now required to provide certifications regarding the existence, application, and effectiveness of Binance's enhanced compliance controls. This ensures that Binance takes the necessary steps to prevent future violations.
Furthermore, the court order mandates the implementation of a corporate governance structure for Binance, including the establishment of a Board of Directors with independent members, a Compliance Committee, and an Audit Committee. These measures aim to enhance transparency and accountability within the organization.
Violations and Egregious Practices by Binance and Leadership
The CFTC's enforcement action against Binance and CZ highlighted numerous violations and egregious practices conducted by the exchange and its leadership. The court found that Binance actively solicited customers in the United States, including quantitative trading firms, and facilitated digital asset derivative transactions directly on its platform.
Moreover, Binance violated its own Terms of Use by allowing prime brokers to open "sub-accounts" exempt from Binance's Know Your Customer (KYC) procedures. This allowed U.S. customers to engage in direct trading on the platform, which was a clear breach of regulatory compliance.
Despite being aware of U.S. regulatory requirements, CZ and Binance deliberately ignored them and concealed the presence of U.S. customers on their platform. The court order also revealed that members of Binance's senior management, including CZ, actively facilitated violations of U.S. law by instructing U.S. customers to evade compliance controls.
CZ Steps Down and Binance Settles
With the approval of the settlement, the long-standing legal battle between the CFTC and CZ, the former CEO of Binance, has finally come to a close. CZ has agreed to step down from his position at Binance, marking a significant development in the case. Richard Teng will now take over as CZ's successor.
The settlement, reached in collaboration with the U.S. Department of Justice and the Treasury Department, requires Binance to pay a substantial $2.85 billion to the CFTC. This represents one of the largest penalties ever imposed on a cryptocurrency exchange.
In a related development, CZ has been ordered to remain in the U.S. until his sentencing date of February 23, 2024. He faces a potential imprisonment term of up to 18 months on money laundering charges. As part of the settlement, CZ has agreed not to appeal any sentence within this specified length.
