Binance Faces US Fraud Charges But Officials Fear Bank Run: Report

Binance Faces US Fraud Charges But Officials Fear Bank Run: Report

The U.S. Department of Justice (DOJ) is weighing whether to charge Binance with fraud. But prosecutors are worried that doing so could cause a run on the world’s largest crypto exchange, leading to losses for users, Semafor reported.

Prosecutors fear an indictment could lead to a bank run similar to the one that bankrupted Sam Bankman-Fried’s FTX exchange, the report said citing people familiar with the matter. FTX sank with $8 billion in user funds last year, causing widespread panic in crypto markets.

The price of Binance’s BNB token fell 4.4% to about $237 after the report on August 2. Bitcoin also tanked marginally. As of writing, BNB had recovered to $241, per CoinGecko data. The token has slumped 65% since its all-time-high of $686 on May 10, 2021.

Binance Faces US Fraud Charges But Officials Fear Bank Run: Report
BNB price ($)

Penalizing Binance

According to Semafor, the U.S. government is exploring other ways to penalize Binance that limit consumer harm. Options include “fines and deferred or non-prosecution agreements” – a compromise that frees Binance from criminal charges, but still accountable for its actions.

Neither Binance nor the Department of Justice has publicly commented on the matter. However, Binance founder and CEO Changpeng “CZ” Zhao later retweeted an old post from Elon Musk questioning the “integrity” of Semafor, which he said was owned by Bankman-Fried.

Binance Faces US Fraud Charges But Officials Fear Bank Run: Report
Screenshot of CZ’s retweet.

Observers say that the Binance case highlights the complex and ever-changing landscape of crypto regulation in the United States. Part of the problem has got to do with how cryptocurrencies are regulated in the U.S. There is no clear consensus on how to classify crypto, leaving many firms to operate in a legal gray area, they say.

Binance is already facing other lawsuits in the United States. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have both filed charges against the crypto exchange and Changpeng Zhao.

SEC alleges that Binance operated an unregistered exchange in the country and knowingly allowed U.S. citizens to participate in its offshore exchange. The CFTC alleges that Binance violated local commodities laws by offering and selling unregistered derivatives products.

The SEC also accuses Binance of “misleading customers and investors by using a secret market-making firm called Sigma Chain to manipulate trades” on the company’s U.S. platform, a separate legal entity from Binance Global.

Crypto market fallout

The demise of FTX was a huge setback for the cryptocurrency market. Even more so that the nascent industry never fully recovered from the multibillion-dollar collapse of the Terra blockchain in May 2022.

As the FTX contagion spread, large cryptocurrency lending businesses, such as Genesis and Celsius, and hedge fund Three Arrows Capital went bust, and filed for bankruptcy protection.

Also read: SEC Appeal Looms as Judge Rakoff Rejects Ripple Case Distinction

The DOJ is hesitant to pursue charges against Binance, the world’s largest crypto exchange, for fear that doing so could destabilize the entire cryptocurrency market.

But U.S. Senator Elizabeth Warren called for an additional criminal investigation into Binance after the company was accused of lying to Congress about its operations.

“These actions by Binance and Binance.US represent a potential violation of federal law that may subject company officials to fines and imprisonment,” she wrote in a letter to U.S. Attorney General Merrick Garland in June.

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