US DOJ deliberates fraud charges against Binance, but concerns of implications to customers weigh over

• The US Department of Justice is planning to launch fraud charges against Binance exchange.
• The prosecutors are concerned, however, about possible blowback to customers akin to what happened with the FTX exchange.
• Alternative options to punish the alleged crime would be a compromise, with the DOJ deliberating between fines and deferment.

The US Department of Justice (DOJ) is deliberating ways to hold Binance Exchange accountable for alleged fraud charges. However, the authority is at a crossroads as advancement could harm innocent customers. Notably, the dilemma comes as memories of the FTX exchange bank run remain fresh.

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US DOJ to prosecute Binance, but a lot is at stake

US DOJ is planning to levy charges against the largest cryptocurrency exchange by trading volume, Binance, citing fraud, adding to the stockpile of charges against the giant exchange and its CEO Changpeng Zhao pushed by the US Securities and Exchange Commission (SEC).

While the federal prosecutors believe in the solidity of their case, they are hesitant as concerns of a run-on lingering. For the layperson, a run-on is a situation where investors withdraw their money from the platform out of fear, leaving the exchange without liquidity. The same was observed when crypto exchange FTX collapsed after Sam Bankman-Fried was called out for commingling customer assets with sister firm Alameda Research.

In the FTX case, customers suffered the brunt of a collapsed exchange, with volumes of money stuck as individual investors and institutions both cited exposure. Similarly, the federal prosecutors fear that by prosecuting Binance they could provoke a run-on against the platform, with many customers likely to suffer financial losses.

Faced with these concerns, the prosecutors are considering alternative options. Sources close to the matter have indicated that Binance could face a “deferred or non-prosecution agreement,” pay a fine, or in the dire case, both, as the DOJ looks to protect customers.

With the prosecution now finding itself at a standstill, the news indicates how exposed customers are, unlike in the traditional banking system, constantly facing the risk of financial losses as exchanges and the authorities tip-toe around each other.

Binance stockpile of charges grows

Meanwhile, Binance exchange and its CEO CZ are also facing the US SEC and the Commodity Futures Trading Commission (CFTC) after the financial regulators charged them for “operating an unregistered exchange in the US and knowingly allowing its citizens to participate in Binance’s offshore exchange.” Other charges include misleading customers and investors through Sigma Chain, a CZ-associated secret market-making firm used to manipulate trades on the exchange’s subsidiary in the US, BinanceUS.

US Senator Elizabeth Warren is also on record criticizing Binance for lying to Congress and calling for the authorities to pursue criminal investigations. An excerpt from her letter to the DOJ reads:

These actions by Binance and Binance.US represent a potential violation of federal law that may subject company officials to fines and imprisonment.

Despite the stretch of these allegations, and cognizant of the potential implication to themselves, the community has somewhat defended Binance while bashing Western media. 

Neither Binance nor the DOJ has given an official statement on the same, but FXStreet will bring updates as they unfold. 

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