Millions of problems. What charges against Binance threaten the exchange's users

The U.S. Department of Justice is preparing to bring charges against the largest cryptocurrency exchange Binance

The leading position and multi-million dollar user base of the largest crypto exchange keep US regulators from taking decisive action.

On Thursday, August 3, the head of the largest cryptocurrency exchange Binance Changpeng Zhao said that the number of registered users on the site has reached the mark of 150 million. Probably, it is the presence of such a significant user base that restrains having claims to the exchange regulators from decisive action in its direction.

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

In March, the Commodity Futures Trading Commission (CFTC) sued Binance and Zhao for allegedly "illegally" operating the exchange and a "sham" compliance program. Then in June, the Securities and Exchange Commission (SEC) filed its own lawsuit against Binance, Zhao, and Binance.US (a separate division of the exchange for the U.S. market) for allegedly violating U.S. securities laws. Now it's being reported that another agency is preparing to file even more serious charges against the exchange.

• Serious charges

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

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

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

• Protecting users

The activity of the "global" Binance in the US is formally prohibited. However, in a June lawsuit, the SEC accused both the exchange and Zhao personally that the management of the platform allegedly deliberately encouraged ways to circumvent blocking for American users. In addition, the agency accuses the U.S. division of Binance of insider trading and market manipulation through a controlled market-making company Sigma Chain. In total, there are 13 charges in the lawsuit, including operating unregistered exchanges, misrepresentation, and engaging in unregistered offers and sales of securities.

According to legal experts interviewed by Semafor, the lawsuit from the SEC strongly resembles a criminal case because of the seriousness of the charges. This suggests that a real criminal prosecution may follow. It's not typical for the SEC to file a civil suit ahead of federal prosecutors, especially in high-profile cases. Typically, the commission works with the DOJ to then bring both civil and criminal charges simultaneously.

Legal experts say the DOJ often weighs the consequences for uninvolved individuals among customers, employees, and shareholders when deciding whether to bring charges against large companies. However, the question remains as to how much of this all applies to a cryptocurrency exchange that "operates in a legal gray area." Users should be aware of the risks, but even if Binance's violations are proven, it does not make them complicit, experts explain.

"Cryptocurrencies have become an integral part of the financial system. The fact that the DOJ is discussing the implications of an indictment for users of the exchange is in some ways a nod to their legitimacy," Semafor writes.

• Largest player

Binance is facing problems not only in the US. According to media reports, French prosecutors are also investigating the exchange for alleged money laundering. In recent months, Binance has also withdrawn from the Netherlands, deregistered companies in Cyprus and Canada, withdrawn its license application in Germany, been ordered to cease operations in Belgium, and restricted some operations in Australia.

Nevertheless, Binance's market share continues to grow. According to the analytics platform website The Block, it remains the world's largest crypto exchange, holding nearly 65% of the market in terms of spot trading volume.

Zhao, meanwhile, remains determined to "keep building." He said last month that Binance is doing "a lot of preparatory work" to adapt its systems to accommodate the growth in cryptocurrency trading volumes over the next six to 18 months. He expects a surge in turnover based on historical patterns and events, including the upcoming bitcoin halving next year.

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