US DoJ is concerned about a run on Binance should prosecutors bring fraud charges: Report

August 4, 2023

By Sharan Kaur Phillora

The United States Department of Justice (DoJ) is reportedly considering levying fraud charges against Binance, the world’s largest cryptocurrency exchange, but is hesitant due to potential fallout and harm to consumers.

Here’s what we know:

According to a report by Semafor on August 2, officials within the Justice Department are contemplating alternatives such as fines or non-prosecution agreements rather than criminal charges. The hesitation stems from concerns over a potential run on the exchange, akin to what transpired with FTX in November 2022, a catastrophe that wiped billions off the market.

Binance is no stranger to regulatory scrutiny. Previously, the exchange was the target of a criminal probe in the U.S. for allegedly violating sanctions against Russia. 

Furthermore, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit in June accusing Binance of offering unregistered securities and operating unlawfully, while the Commodity Futures Trading Commission (CFTC) pursued actions against the exchange and CEO Changpeng “CZ” Zhao in March for alleged trading and derivatives violations.

The concern of U.S. officials goes beyond Binance, as an indictment against such a key player could have broader ramifications for the cryptocurrency industry. The painful collapse of FTX and historical financial downfalls like Lehman Brothers in 2008 illustrate the risks of targeting a systemically important institution.

Binance’s reach has been expanding with the recent announcement of Binance Japan’s launch on August 1. However, unsettling reports have circulated about the company conducting billions in crypto-related business in China and contemplating the closure of Binance.US to safeguard itself. Binance has refuted the China allegations and remained silent on the report about shuttering its U.S. business.

The immediate reaction to the news was a dip in the price of bitcoin (BTC) and Binance’s own BNB token. The situation accentuates the fragile state of the crypto market, with officials mindful of not triggering a wider crisis.

While Binance declined to comment on the situation, the Justice Department’s deliberations underscore the delicate balance regulators must strike between enforcing laws and avoiding undue disruption to a burgeoning industry. 

As of the time of publication, no formal charges have been filed against Binance or Binance.US, but the looming possibility signals a continued trend of governmental scrutiny on cryptocurrency exchanges.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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