Binance under investigation for market manipulation and insider trading

Binance under investigation for market manipulation and insider trading

By Sam Grant - min read

The Commodity Futures Trading Commission (CFTC) alleges that some of the staff at the exchange may have taken advantage of users

The world's largest crypto exchange is once again under the spotlight, this time over allegations of possible insider trading and actions to manipulate the market. Bloomberg reported the matter on Friday, citing persons in the know who claimed the exchange was being probed by the US Commodity Futures Trading Commission for possible customer exploitation.

A spokesperson from Binance responded to Bloomberg on the allegations saying the firm has a zero-tolerance policy on insider trading. The spokesperson also said the exchange takes immediate action against persons involved in such activities, with offenders facing the minimum punishment of immediate termination.

It should be noted that the CFTC has not officially established any charges against Binance. The Bloomberg report categorically suggested that the commission had only been talking to potential witnesses. There is a possibility that the investigations may not result in any legal action.

Binance has faced previous investigations by other government bodies in the US over money laundering accusations and tax fraud. The exchange was previously under investigation by the CTFC for possibly having allowed US users to trade derivatives. The latest action by the commission appears to have emerged from the same probe.

The cryptocurrency entity is taking heat from all corners, considering that the platform faces potential legal action from a group of investors. The investors claim to have incurred severe damages due to a May outage stemming from a technical issue. The 'glitch' affected customers' ability to flex their positions which meant that they were faced with forced liquidation at a time of high market volatility.

In response, Binance had offered restitution covering between 10% and 30% of the losses, but not all users took up the offer. Some joined together to reject the compensation and are now seeking damages worth $20 million.

All legal actions against Binance have been complicated further by the fact that the exchange lacks an established centre of operations. As such, it is not specifically tied to any jurisdiction where users can take legal action. However, Binance CEO Changpeng Zhao signalled last week that the exchange plans to establish a defined headquarters and streamline the company structure.

Last month, another crypto exchange that has been under investigation, BitMEX, reached an agreement with the CFTC and the Financial Crimes Enforcement Network (FinCEN) to pay a $100 million penalty. The settlement followed a civil suit filed by the CFTC in October 2020 over unregistered operation, money laundering accusations and violation of CTFC regulations. BitMEX, however, did not admit to any wrongdoing.