The lawsuit accuses Binance of violating the RICO Act.
Binance, the world’s largest cryptocurrency exchange, and its former CEO, Changpeng Zhao, are at the center of a new class action lawsuit.
Filed on August 16 by three crypto investors, Philip Martin, T.F. (Natalie) Tang, and Yatin Khanna, the lawsuit accuses Binance of failing to prevent stolen cryptocurrency from being laundered through its platform.
The plaintiffs argue that their crypto assets were stolen from Coinbase and then transferred to Binance by the perpetrators to “remove the connection between the ledger and their digital assets,” making the stolen funds untraceable.
The lawsuit accuses Binance of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act, which is designed to combat organized crime in the United States, targeting those who operate or manage criminal enterprises. Under RICO, it is unlawful for individuals to acquire, operate, or receive income from an enterprise through a pattern of racketeering activity.
The plaintiffs also allege that Binance failed to implement Know Your Customer (KYC) and anti-money laundering (AML) policies, enabling bad actors to launder stolen cryptocurrency.
“Defendants’ willful disregard of these important laws and regulations turned Binance.com into a magnet and hub for criminals, users from sanctioned jurisdictions, terrorists, and other bad actors,” the lawsuit claims.
Plaintiffs Detail Crypto Thefts
Khanna claims that a hacker stole approximately $1.5 million worth of cryptocurrency in August 2022 from his Coinbase account, which was subsequently transferred to various Binance addresses. The lawsuit includes detailed specifics on addresses and on-chain transaction records, outlining the flow of the stolen assets to Binance.
“Defendants substantially assisted and enabled bad actors to complete the conversion of the cryptocurrency assets,” the lawsuit alleges.
Martin, another plaintiff, experienced a similar incident in December 2021, where cryptocurrency worth “tens of thousands” of dollars was stolen from his Coinbase account. Those stolen assets were traced back to an account on Binance.com. Similarly, in July 2022, Natalie Tang’s cryptocurrency was stolen from her Coinbase account and subsequently traced to Binance.com accounts.
Binance did not respond to The Defiant’s request for comment.
Impact on the Crypto Industry
Bill Hughes, senior counsel at Ethereum development firm Consensys, expressed skepticism that the case could have significant implications for the crypto industry if it goes to trial.
Hughes described the lawsuit as a “natural, predictable follow-on civil action” following government prosecutions.
“If this case goes far into discovery and even to dispositive pre-trial motions, then the efficacy of blockchain analytics itself and on-chain asset recovery will be on trial,” he tweeted. “The things that Binance would be incentivized to say about tracing and recovery — kinda a tough position to be in, honestly, if you care anything about the industry.”
Settlement with U.S. Authorities
In November 2023, Binance and Zhao reached a settlement with U.S. authorities following extensive investigations into violations of U.S. AML and sanctions laws.
Binance agreed to a combined total of $4.3 billion in penalties. Of this amount, $2.5 billion was paid to the Department of Justice (DOJ) for violations of the Bank Secrecy Act and the International Emergency Economic Powers Act (IEEPA).
Binance also paid $2.7 billion to the Commodity Futures Trading Commission (CFTC), which included $1.35 billion in civil monetary penalties and $1.35 billion in disgorgement to compensate affected users. Zhao paid a $150 million fine as part of the CFTC settlement, which also imposed restrictions on his future activities within the company.
CZ pleaded guilty to one felony charge for failing to implement an effective AML program at Binance and was sentenced to four months in prison. As part of the settlement, CZ stepped down as CEO of Binance, with Richard Teng, the global head of regional markets, taking over the role.
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