Three cryptocurrency investors have launched a class-action lawsuit against Binance and its former CEO, Changpeng “CZ” Zhao. The plaintiffs claim that their lost cryptocurrency assets could not be recovered due to Binance’s alleged failure to prevent money laundering activities. They assert that the stolen digital assets were funneled by the thieves through Binance, erasing their ties to the ledger and rendering them untraceable.
The crux of the accusers’ argument is the nature of crypto transactions themselves – they’re designed to be permanently recorded on the blockchain, thus making them traceable. Without a platform like Binance to erase these transactional footprints, culprits would likely be caught following the money trail on the blockchain. This activity, they claim, directly contravenes the Racketeer Influenced and Corrupt Organizations (RICO) act
Bill Hughes, director of global regulatory matters at Consensys, believes the lawsuit could have significant implications for the entire industry if it leads to a trial. Given that blockchain analytics and on-chain asset recovery could be called into question, it may thrust Binance into a precarious situation.
In November 2023, CZ pled guilty to contravening U.S. money-laundering laws, subsequently stepping down as Binance CEO as part of his settlement with authorities. Binance agreed to a substantial $4.3 billion penalty related to the enforcement of civil regulations. Shortly after, in April, CZ received a four-month prison sentence, much shorter than the three years requested by federal prosecutors.
In a further blow to the company, the U.S. Securities and Exchange Commission filed a lawsuit against Binance in June 2023. They allege that the exchange and CZ misled them regarding its market surveillance controls and falsely inflated its trading volume statistics.