Melker Bengtsson
TL;DR
-
Nearly 1,700 investors are suing Binance and CZ in London, seeking £150 million over high-risk derivatives sold without FCA authorisation.
-
The claim covers two infractions: pre ban, the products lacked authorisation; post ban, they were sold despite the ban.
-
Even if true, there's no guarantee of success: a precedent case favoured the defendant, and collection across jurisdictions could prove difficult.
-
Binance and Zhao are fighting on multiple fronts; a ruling for the claimants would open doors for other exchanges' clients.
Binance and Changpeng Zhao, CZ, are being sued by 1,700 investors in London. The investors are seeking £150 million in damages as they allege the company sold them high-risk derivatives without FCA authorisation.
The lawsuit has four defendants; Binance, Nest Exchange, Zhao himself and “persons unknown” which is a placeholder for persons or entities that have not yet been identified. The lawsuit is coordinated by the British law firm KP Law who’s taken the case on a no-win, no-fee basis. Binance have announced they’ll contest the claim, with a spokesperson telling Reuters:
Binance remains committed to its obligations to users and to operating in accordance with applicable law.
The derivatives products that are the focus of this lawsuit were prohibited by law in 2021 but were available to trade from 2019. In the lawsuit, therefore, there are two separate infractions, the pre ban and post ban. Pre ban the lawsuit claims the products were available to trade without the correct authorization and post ban adds the sale despite the ban on top. The FCA said:
There appeared to be no barrier to a customer based in the UK purchasing these products via the binance.com website.
Even if all this is true, there’s no guarantee the lawsuit would be successful. A precedent case, Adams vs Options SIPP was decided in favour of the defendant back in 2020. Even if successful, the defendants are in completely different jurisdictions and collection could prove difficult.
Fighting on multiple fronts
Binance and Zhao are fighting legal and regulatory fights on multiple fronts, and have been for some time. Zhao pleaded guilty of breaching anti-money laundering statutes in the US and sentenced to prison but has since been released. Additionally, they unsuccessfully pursued an exchange license in Greece. The full MiCA framework is now in effect in the EU and since Binance doesn’t have a license in an EU country, they’ve halted certain features for residents of the union.
No trial date has been set and a case like this can run for years, so we might have to wait for a final ruling on the case. A ruling in favour of the claimants would open doors for clients of other exchanges to file their own lawsuits.
