Cryptocurrency exchange Binance and its former CEO Changpeng Zhao (CZ) are facing another legal hurdle in the form of a class-action lawsuit filed by three investors. The lawsuit alleges that Binance’s failure to prevent money laundering hindered their efforts to recover stolen crypto assets.
Filed on August 16th in the U.S. District Court for the Western District of Washington, the lawsuit claims that stolen crypto was funneled through Binance by thieves aiming to sever the connection between the stolen funds and the public blockchain ledger. This, according to the plaintiffs, rendered the assets untraceable.
The crux of the argument hinges on the supposedly permanent and transparent nature of blockchain transactions. “A key attribute of crypto transactions is a permanent record of those transactions on the blockchain, which makes them permanently and accurately traceable,” the lawsuit states.
The plaintiffs argue that without platforms like Binance facilitating money laundering, stolen crypto could be recovered by following the digital trail left behind on the blockchain. They allege that Binance’s actions violated the Racketeer Influenced and Corrupt Organizations Act (RICO).
Uncertain Outcome, Potential Industry Impact
Legal experts remain divided on the merits of the lawsuit. Bill Hughes, a senior counsel at Consensys, expressed doubts about the plaintiffs’ ability to prove their claims. However, he acknowledges the lawsuit puts Binance in a precarious position and could have significant ramifications for the cryptocurrency industry as a whole.
“If this case goes far into discovery,” Hughes suggests, “the efficacy of blockchain analytics itself and on-chain asset recovery will be on trial.” He highlights the potential conflict of interest Binance might face when defending its practices related to tracing and recovery.
CZ’s Past and Ongoing Legal Battles
This lawsuit comes on the heels of a tumultuous year for Binance and CZ. In November 2023, CZ pleaded guilty to violating US money laundering laws, stepping down as CEO as part of a settlement with authorities. Binance itself agreed to pay a hefty $4.3 billion in fines.
Further complicating matters, the US Securities and Exchange Commission (SEC) filed a separate lawsuit against Binance in June 2023, accusing the exchange of misleading investors about market surveillance and inflating trading volumes. A significant portion of that case is set to proceed.
With CZ recently released from a four-month prison sentence and Binance facing yet another legal battle, the future of the exchange and the broader crypto industry remains uncertain. This class-action lawsuit adds another layer of complexity, potentially challenging the very core functionalities used to track and recover stolen crypto assets.
Also Read: Binance Returns To India – $2.25 Million Fine Paved The Way
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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