How will the accusations against Binance affect users of the exchange?

On Thursday, August 3, the head of the largest crypto exchange Binance, Changpeng Zhao curledthat the number of users registered on the site has reached 150 million. Probably, it is the presence of such a significant user base that is holding back regulators who have claims against the exchange from taking decisive action in its direction, writes RBC Crypto.

According to Zhao, this increase in users was recorded after Binance re-entered the Japanese market and received a license in Dubai. Back in May, Binance had 128 million registered users, meaning the exchange acquired 22 million users in just three months. However, the increase in the number of users occurs against the backdrop of problems and litigation.

In March, the Commodity Futures Trading Commission (CFTC) sued Binance and Zhao for allegedly “illegal” operation of the exchange and a “bogus” compliance program. Then in June, the Securities and Exchange Commission (SEC) filed its own lawsuit against Binance, Zhao and Binance.US (a separate arm of the exchange for the US market) for allegedly violating US securities laws. Now it is reported that another department is preparing to bring even more serious charges to the exchange.

Serious accusations

According to the source Semafor, The US Department of Justice (DoJ) is investigating and preparing to file fraud charges against Binance. However, the department is concerned about what such serious claims could result in for millions of exchange users.

According to journalists, prosecutors are seriously afraid that if they file charges against Binance, this could provoke a panic of enormous proportions and a so-called bank run (mass withdrawal of deposits), similar to the one that befell the FTX platform last November. Then, in just a few days, it led to its bankruptcy and the loss of billions of dollars of user deposits. Such an event could bring down the crypto market, the interlocutors of the publication say.

That is why the agency is considering other options, such as fines and agreements to defer or not prosecute. Such an outcome could be a kind of compromise: Binance would be held accountable in the event of proven violations, while minimizing the damage to users. Both the Ministry of Justice and the exchange itself refuse to comment on the situation, despite numerous requests from journalists.

User Protection

The activities of the “global” Binance in the US are formally prohibited. However, in a June lawsuit, the SEC accused both the exchange and Zhao personally of the fact that the platform’s management allegedly deliberately encouraged ways to bypass the blocking for American users. In addition, the agency accuses the American division of Binance of insider trading and market manipulation through the controlled market maker company Sigma Chain. In total, there are 13 charges in the lawsuit, including management of unregistered exchanges, misrepresentation of information and participation in an unregistered offer and sale of securities.

According to legal experts interviewed by Semafor, the SEC lawsuit strongly resembles a criminal case due to the seriousness of the charges. This gives reason to believe that this may be followed by a real criminal prosecution. It’s not common for the SEC to file a civil suit ahead of federal prosecutors, especially in high-profile cases. Usually, the commission works in conjunction with the Ministry of Justice in order to bring both civil and criminal charges at the same time.

Lawyers say the Justice Department often weighs the consequences for uninvolved clients, employees and shareholders when it decides whether to indict large companies. However, the question remains as to how all this applies to a cryptocurrency exchange that “operates in a gray legal area.” Users should be aware of the risks, but even if Binance violations are proven, this does not make them accomplices, experts explain.

Biggest player

Binance is not only facing problems in the US. French prosecutors are also investigating the exchange for alleged money laundering, according to media reports. In recent months, Binance has also pulled out of the Netherlands, deregistered companies in Cyprus and Canada, withdrew its license application in Germany, received a cease and desist order in Belgium, and restricted some operations in Australia.

However, Binance’s market share continues to grow. According to the analytical platform of the site The Block, it remains the largest crypto exchange in the world, occupying almost 65% of the market in terms of spot trading volume.

Zhao, however, still intends to “continue to build.” Last month, he stated that Binance is doing “a lot of preparatory work” to

adapt their systems to the growth in cryptocurrency trading volumes over the next 6-18 months. He expects a sharp increase in turnover based on historical patterns and events, including the upcoming Bitcoin halving next year.