- Crypto exchange Binance is facing new legal woes.
- Binance and CZ have been named in a lawsuit for misconduct.
- The exchange previously faced sanctions over money laundering ties.
Binance, the largest crypto exchange by trading volume, has recently faced intense legal challenges, including sanctions and convictions for regulatory violations. The troubles culminated in a hefty financial penalty, the ousting of its founder Changpeng Zhao (CZ), and his criminal sentencing, marking an end to its most intense chapter.
While the dust has only begun to settle for the exchange and Zhao, a new looming battle threatens to reopen old wounds and extend their woes even further.
Binance, the โGet-Away Driverโ for Laundering
Binance and its former CEO, Changpeng Zhao, have again been thrust into the spotlight for all the wrong reasons. On August 16, 2024, a group of plaintiffs filed a class action lawsuit in the United States District Court for the Western District of Washington, Seattle, against the two with fresh allegations over its money laundering ties.
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According to the lawsuit, under CZโs leadership, Binance failed to prevent money laundering and violated U.S. laws, leading to substantial financial losses for three investors. Plaintiffs argue that bad actors funneled stolen funds through the exchange, using its platform to obscure their trail and any chances of recovery.
The lawsuit added that Binanceโs involvement constitutes illegal racketeering in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) statute. It added that without Binance’s role, the transparency of blockchain would have given victims a better chance to recover their stolen assets.
โDefendantsโ willful disregard of these important laws and regulations turned Binance.com into a magnet and hub for criminals,โ the lawsuit stated, adding that, โBinance.com became a critical part of their efforts to launder crypto which was stolen or obtained by other unlawful means. Binance.com became a preferred-choice as the โget-away driverโ for a large number of bad actors.โ
Another focal point of argument was the exchange and CZโs conviction by the DOJ. The plaintiffs added that Zhaoโs guilty plea and apology are admissions of guilt for putting profits before the law, and they are now seeking compensation for damages.
Binance and CZ in Hot Water with New Lawsuit
Weighing in on the allegations, Consensys Lawyer Bill Hughes emphasized that the case marks another legal headache for Binance. While he characterized the lawsuit as a โpredictable follow-on civil action,โ which typically emerges after government prosecutions, he stated that it constitutes a tough spot for both Binance and CZ.
Hughes highlighted the strength of the plaintiffโs legal team, noting their history of taking on major cases against entities such as Facebook, opioid manufacturers, and Wells Fargo.
โTheir pockets are deep and they smell the blood in the water,โ he stated.
He, however, pointed out that the plaintiffs might face challenges in proving their key argument that Binanceโs role played a role in the asset thefts. Nonetheless, Hughes warned that if the case goes far into discovery, the effectiveness of blockchain tracing tools and asset recovery could come under scrutiny, further complicating matters for the exchange.
On the Flipside
- CZ is presently serving his prison term, with an expected release date of September 29, 2014.
- Following its conviction by the DOJ, Binance paid a whopping $4.3 billion in fines, the largest financial penalty ever imposed on a money services business.
- The courts have dismissed most past class action lawsuits against Binance. However, in March 2024, an appellate court revived a similar class action lawsuit from 2020.
Why This Matters
The latest class action lawsuit represents a new legal battle for Binance and CZ. With their reputation already damaged by previous enforcement actions, this new lawsuit adds further pressure, and the case outcome holds significant implications for the duo’s future.
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