Cryptocurrency exchange Binance and its CEO Changpeng ‘CZ’ Zhao have filed a motion to dismiss the charges brought against them by the U.S. Commodity Futures Trading Commission (CFTC), stating that the regulator acted beyond its powers. Binance argued that the CFTC failed to establish personal jurisdiction over the foreign Binance Entities and Mr. Zhao since the exchange does not operate in the United States and its CEO does not reside there.
Failure to Differentiate Between Binance Entities
The motion also highlighted that the CFTC did not differentiate between the various Binance entities and grouped them together, even though each entity has distinct roles. This grouping was done by referring to all foreign entities as “Binance.” The exchange contended that the regulator did not establish personal jurisdiction for each of the named defendants, including Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance Holdings (Services) Limited.
Binance Challenges CFTC’s Regulatory Authority
In its defense, Binance asserted that the CFTC charges should be dismissed since the agency lacks regulatory authority over spot trading activities, both in the U.S. and abroad. The exchange emphasized that the seventh count brought by the CFTC, which accused Binance of willfully evading provisions of the Commodity Exchange Act (CEA) and its regulations, should also be dismissed. Binance argued that the regulator has never before enforced this provision and is now attempting to test it against a novel industry and products that did not exist when the regulation was established in 2012.
Insufficient Evidence and Failure to Establish Jurisdiction
Addressing the CFTC’s claims, Binance concluded that the court should dismiss the entire case due to the regulator’s failure to establish jurisdiction over the defendants and to prove that it can enforce the cited provisions extraterritorially. The exchange further stated that the CFTC failed to include essential elements of its claims, making them invalid in its view.
Background: CFTC’s Lawsuit Against Binance
In March, the CFTC filed a lawsuit against Binance alleging that the cryptocurrency exchange had violated U.S. derivatives laws by offering services to U.S. residents without registering. Binance has now responded to the charges, contesting the jurisdictional authority of the CFTC.
Binance has taken a strong stance against the charges brought by the CFTC, arguing that the regulator acted outside its powers and failed to establish personal jurisdiction over the defendants. The exchange also challenged the CFTC’s regulatory authority over spot trading activities and the validity of the specific provision invoked in the case. Binance’s motion to dismiss serves as a robust defense against the CFTC’s allegations, highlighting the legal complexities surrounding the regulation of cryptocurrency exchanges. The outcome of this case will have significant implications for the broader cryptocurrency industry.