Investors Drag CZ and Binance to Court for Allegedly Laundering Stolen Crypto

Binance and its former CEO, Changpeng “CZ” Zhao, are once again in the spotlight as they confront a new class-action lawsuit filed by three cryptocurrency investors. The plaintiffs allege that CZ and Binance played a critical role in laundering stolen digital assets, preventing the recovery of their funds.

The lawsuit, filed on 16 August in the U.S. District Court for the Western District of Washington, Seattle, marks yet another chapter in the ongoing legal challenges facing CZ and Binance. The plaintiffs claim that their cryptocurrency was stolen and subsequently transferred to Binance by the thieves to obscure the connection between the digital assets and the blockchain ledger, rendering them virtually untraceable.

According to the complaint, one of the key advantages of blockchain technology is the immutable record of transactions. However, the plaintiffs argue that this advantage becomes moot when a platform like Binance facilitates the laundering of these stolen assets. “Without a place to launder crypto, such as Binance.com, bad actors risk being tracked down by authorities through blockchain analysis,” the lawsuit states.

The plaintiffs assert that CZ and Binance were integral to the money laundering process, which they claim violates the Racketeer Influenced and Corrupt Organizations (RICO) Act. The RICO Act, historically used to combat organised crime, is now being invoked to address what the plaintiffs describe as a systemic issue within the cryptocurrency exchange.

CZ and Binance’s Legal Predicament

Bill Hughes, senior counsel and director of global regulatory matters at Consensys, a leading Ethereum development firm, weighed in on the implications of the lawsuit. In a post on X (formerly Twitter) dated 20 August, Hughes expressed scepticism about the lawsuit’s prospects but acknowledged its potential impact on the industry. “I’m dubious about whether the suit will be able to prove these allegations,” Hughes wrote. “However, if it progresses to discovery and pre-trial motions, it could place the efficacy of blockchain analytics itself on trial.”

Hughes’ comments underscore the precarious position CZ and Binance find themselves in. The case not only challenges the actions of the exchange and its former CEO but also raises broader questions about the reliability of blockchain analytics in tracking and recovering stolen assets. “The things that Binance would be incentivized to say about tracing and recovery – [kind of] a tough position to be in, honestly, if you care anything about the industry,” Hughes added.

Ongoing Legal Battles for CZ and Binance

This latest lawsuit is far from the first legal challenge faced by CZ and Binance. In November 2023, CZ pleaded guilty to violating U.S. money laundering laws and subsequently stepped down as CEO of Binance as part of a settlement with authorities. The exchange agreed to pay a staggering $4.3 billion in fines to resolve a series of civil regulatory enforcement actions. The ramifications of that case continue to ripple through the cryptocurrency world, and the new lawsuit only adds to the mounting pressure on the beleaguered exchange.

In April 2024, a federal judge sentenced CZ to four months in prison, significantly less than the three years federal prosecutors had sought. CZ began serving his sentence in June and is expected to be released in September. The outcome of that case did little to stem the tide of legal challenges, as the U.S. Securities and Exchange Commission (SEC) also filed a suit against Binance in June 2023. The SEC accused CZ and Binance of misleading the agency regarding its market surveillance controls and inflating trading volumes. On 28 June, a court ruled that most of the SEC’s case could proceed, adding yet another layer of complexity to the ongoing saga.

The latest lawsuit could have significant ramifications for CZ and Binance and the entire cryptocurrency industry. If the case progresses, it could set a precedent for how exchanges are held accountable for the actions of bad actors using their platforms. It may also bring the efficacy of blockchain analytics and on-chain asset recovery into sharper focus, potentially reshaping industry practices and regulations.

Awaiting Binance’s Response

As of now, Binance has not publicly responded to the allegations outlined in the lawsuit. Cointelegraph reached out to the exchange for comment, but no response was received by the time of publication. The silence from Binance only adds to the uncertainty surrounding the case and the future of one of the world’s largest cryptocurrency exchanges.

As CZ and Binance continue to navigate these legal waters, the broader cryptocurrency community will be watching closely. The outcome of this case could have far-reaching implications for the industry, particularly in how exchanges are regulated and how blockchain technology is used in legal proceedings. The Bit Gazette has the latest crypto news and expert analysis.