3 min read
Binance, the world's largest crypto exchange, and its CEO, Changpeng “CZ” Zhao, have officially requested the dismissal of a lawsuit brought by the United States Commodity Futures Trading Commission (CFTC).
The motion, submitted on July 27, accuses the CFTC of overstepping its regulatory boundaries and engaging in regulatory overreach.
The CFTC initiated the lawsuit against Binance in March, alleging that the company offered unregistered derivatives products in the U.S., including cryptocurrency trading services, futures, and options products.
The regulator also accused Binance of inadequate supervision, a lack of a robust KYC or AML program, and failing to register as a futures commissions merchant, designated contract market, or swap execution facility.
In the filing’s introduction, Binance's lawyers state that “it is a bedrock principle of our legal order that, as a general rule, ‘United States law governs domestically but does not rule the world,’” citing the case Microsoft Corp. v. AT&T Corp (2007).
“The CFTC seeks to regulate the overseas activities of foreign corporations and individuals based on conclusory allegations that fail to establish jurisdiction over the defendants, fail to establish that the CFTC can enforce the provisions cited in the complaint extraterritorially, and fail to plead essential elements of its claims,” the filing reads.
While Binance’s parent company is registered in the Cayman Islands, the exchange states it does not have an official headquarters and has repeatedly declined to identify its operational base.
When Decrypt asked for comments, a Binance spokesperson stated: “We will not comment on ongoing litigation.”
The filing includes precisely five types of arguments.
The first is the “Lack of Personal Jurisdiction.” Binance contends that the CFTC's complaint should be dismissed as it fails to prove that the foreign Binance entities and its CEO are subject to personal jurisdiction in the U.S. It argues that the complaint is based on group pleading and does not individually assess each defendant's contacts with the U.S.
The second argument revolves around “extraterritoriality,” which claims the CFTC is overreaching its boundaries. According to Binance, the CFTC fails to allege that the defendants engaged in any domestic transactions.
Additionally, Binance argues that several counts fail because the CFTC cannot allege that Binance.com is a domestic board of trade or that any defendants operated as a foreign board of trade.
Furthermore, Binance maintains that the CFTC's complaint does not adequately allege that the Binance.com platform acts as an intermediary or a counterparty. “There is no dispute that the CFTC has no regulatory authority over spot trading even in the United States, let alone abroad,” the filing states.
Lastly, Binance argues that the CFTC's claim of willful evasion of provisions of the Commodity Exchange Act (CEA) and its regulations should be dismissed outright.
Binance argues that the CFTC is testing this anti-evasion claim for the first time against a novel industry and products that did not exist when the regulation was promulgated in 2012.
More generally, Binance also highlighted the lack of guidance from authorities, something its competitors Coinbase have also noted during its regulatory squabbles.
“When Binance.com launched in 2017—with the cryptocurrency industry in its infancy—there was almost no regulatory guidance regarding digital assets at all,” says the filing. “And the intervening years have hardly clarified matters, as demonstrated by the ongoing regulatory tug-of-war between the Securities and Exchange Commission and the CFTC over cryptocurrency regulation and enforcement.”
Decrypt-a-cookie
This website or its third-party tools use cookies. Cookie policy By clicking the accept button, you agree to the use of cookies.