In the wake of the increasing troubles, Binance 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 opposes CFTC’s lawsuit from March.
On Thursday, the SEC submitted the motion accusing the CFTC of overstepping its regulatory boundaries and engaging in regulatory overreach. The CFTC in its lawsuit had alleged that the exchange offered unregistered derivatives products in the U.S., including cryptocurrency trading services, futures, and options products.
Simultaneously, the regulator had also accused Binance of inadequate supervision and lack of compliance in essential practices like robust KYC or AML program. It added that the exchange failed 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.” They also added an example of a case of of Microsoft here to support the argument. The filing added:
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.
Sources reveal that the filing is pretty extensive explaining why Binance wanted an increase of page- limit in its favour. Notably, the court filing includes precisely five types of arguments which are explained in the paragraphs below.
First, Binance highlights the point of “lack of personal yurisdiction.” The exchange 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. Further, it argues that the complaint is based on group pleading and does not individually assess each defendant’s contacts with the U.S.
Now, the second point talks of “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 claims that several counts fail because the regulator cannot allege that Binance is a domestic board of trade or that any defendants operated as a foreign board of trade. Evidently, Binance also maintains that the CFTC’s complaint does not adequately allege that the Binance platform acts as an intermediary or a counterparty. The filing stated:
There is no dispute that the CFTC has no regulatory authority over spot trading even in the United States, let alone abroad.
Lastly, Binance argues that the CFTC’s claim of intensional violation of provisions of the Commodity Exchange Act (CEA) and its regulations should be dismissed instantly.
As per the filling, Binance also claims 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. Simultaneously, Binance also highlighted the lack of guidance from authorities, something its competitors Coinbase have also highlighted during its regulatory squabbles. The filing stated:
When Binance launched in 2017—with the cryptocurrency industry in its infancy—there was almost no regulatory guidance regarding digital assets at all. 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.
While Binance is currently facing enforcement actions from regulators across the globe, the scene in the US also highlight the dire need of regulation. Apart from this lawsuit, the Securities and Exchange Commission (SEC) sued Binance and its CEO, Changpeng Zhao, alleging that they intentionally evaded laws and operated an illegal exchange. In its 136-page document, the SEC accused the exchange of operating without a license and offering unregistered securities. It also claimed that Binance and CEO Changpeng Zhao (CZ) commingled users’ funds.
However, troubles for the exchange are gonna take a long time as the US DoJ is also investigating the exchange for money laundering concerns and violating economic sanctions on Russia. On top of it, amid the global crackdown, various countries have risen against the exchange including Brazil, Netherlands, France, Austria, Cyprus, and Germany.