According to a report from CoinDesk, the world’s largest crypto exchange, Binance, may face U.S. Department of Justice fraud charges. However, prosecutors are considering alternatives given the potential for an FTX-style bank run, Semafor reported, citing those familiar with the matter.
The price of bitcoin (BTC) and Binance's BNB token immediately fell following the report.
The debate points to the complex and steadily evolving nature of crypto enforcement and regulation in the U.S., where firms operate in a legal gray area and consumers have none of the protections set in place for the traditional banking system.
It was already public knowledge that U.S. officials were investigating Binance. Earlier this year, the Commodity Futures Trading Commission (CFTC) sued the company and founder and CEO Changpeng "CZ" Zhao for "willful evasion" of U.S. laws by operating an unregistered exchange in the U.S. and knowingly allowing its citizens to participate in Binance’s offshore exchange.
According to Semafor, the United States Securities and Exchange Commission (SEC) also alleged Binance misled customers and investors by using a secret market-making firm called Sigma Chain to manipulate trades on Binance’s U.S. platform.
Legal experts have said that the SEC’s case resembles a criminal indictment because of the seriousness of the charges, raising the possibility that criminal charges could follow.
U.S. officials are concerned an indictment could jeopardize the broader cryptocurrency industry, according to Semafor. For that reason, they are considering alternatives such as "fines and deferred or non-prosecution agreements," sources told the publication. That outcome would be a compromise, holding Binance responsible for alleged criminal behavior while reducing consumer harm.
But the fallout brought on by last year's collapse of Sam Bankman-Fried's FTX, as well as the long history in traditional finance of failed firms – like Lehman Brothers in 2008 – dragging down the rest of the industry, shed light on the peril of going after a systemically far-reaching institution. Binance is the largest crypto exchange in the world.
FTX's demise erased billions of dollars in value from crypto markets, tarnished the industry's image and pushed the large lending business of Genesis into bankruptcy court.
With another lawsuit against crypto exchange Coinbase, the SEC seems focused on pushing digital assets out of the United States. Lawmakers, on the other hand, could take this opportunity to protect consumers by developing new rules governing the crypto industry, making the U.S. a more welcoming atmosphere and offering consumers safer alternatives to exchanges like Binance and FTX, which went offshore.
Fear, Uncertainty, and Doubt (FUD) at its finest…
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