CFTC Lawsuit Won't Affect Binance's Acquisition of Voyager, Experts Say

By André Beganski

A lawsuit brought by a U.S. regulator against Binance Monday had an instant impact on the crypto market as coins like Bitcoin and Ethereum fell. But its effect on Voyager’s ongoing bankruptcy case could be more muted, numerous legal experts said.

The Commodity Futures Trading Commission (CFTC) accused Binance—the largest exchange by trading volume—of violating trading and derivatives rules, allowing customers in the U.S. to illegally trade derivatives such as futures or swaps.

While it’s not listed as a defendant, the CFTC’s lawsuit references Binance US multiple times. The exchange tailored to U.S. customers was launched in 2019 by BAM Trading and Binance CEO Changpeng Zhao, who described Binance US as ideally a “navy boat” to Binance’s “pirate ship,” the lawsuit alleges.

Binance maintains that it and Binance US are separate companies, though their closeness has been questioned multiple times. Nonetheless, Binance US solidified its place earlier this month as a potential buyer of Voyager’s assets after Judge Michael Wiles approved a deal in U.S. Bankruptcy Court for the Southern District of New York.

The roughly $1.3 billion restructuring deal is far from complete. The Securities and Exchange Commission (SEC) and other regulators have opposed the deal. The U.S. Justice Department filed an appeal against Judge Wiles’ ruling March 9., and the deal was put on pause yesterday by a separate judge until the appeal is fully addressed.

Yet it’s unlikely that the CFTC lawsuit will disrupt Voyager’s deal with Binance US because any determination that stems from it will take time, MPCH’s Chief Legal Officer Cathy Yoon told Decrypt.

"I can't imagine it being unwound because you're not going to get a resolution to this [lawsuit] for a very long time," she said. 

Voyager is one of several crypto firms that collapsed last year, filing for Chapter 15 bankruptcy last July. The broker went bust partly from loans to the defunct crypto hedge fund Three Arrows Capital (3AC) that soured after the $60 billion implosion of LUNA and Terra USD blindsided 3AC.

Since Voyager and Binance US aren’t involved in derivatives trading, the CFTC lawsuit may not be applicable to the deal, Director of Regulatory Affairs at Blockchain Intelligence Group Timothy Cradle told Decrypt. 

He noted the agency is seeking civil penalties, registration bans, and permanent injunctions, but only as it relates to Binance’s derivatives offerings.

“If what Binance US is purchasing from Voyager is not a derivatives product, then my initial reaction is it should not affect what they’re trying to do,” he said. “I’m only thinking that because of what the CFTC is looking for in terms of their actual penalties in this case.”

The CFTC lawsuit could be a limited factor in the lawsuit, but there are other hurdles the deal faces. Additionally, a report from Bernstein said the lawsuit could eventually force Binance to shutter its operations in the U.S., which may end up including Binance US.

Even if Judge Wile’s approval of the deal is upheld, the plan he approved makes Binance US’s acquisition of Voyager’s assets subject to various regulatory approvals, Cherokee Acquisition Manager Vladimir Jelisavcic told Decrypt.

He believes the deal was already likely to fall through for that reason, forcing Voyager to conduct an orderly liquidation instead of selling its assets to Binance US, which would require Voyager’s customers to create an account with Binance’s American affiliate.

“This is just like another nail in the coffin, but the person inside the coffin was already dead,” he said. “What the CFTC did is kind of kicking the dead horse of Binance US as far as acquiring Voyager.”

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