CZ and Binance face new lawsuit for allegedly laundering stolen crypto

Author: Stephen Katte, CoinTelegraph; Compiler: Wuzhu, Golden Finance

Binance and its former CEO Changpeng Zhao (CZ) are facing a new class-action lawsuit from three cryptocurrency investors who claim they are unable to recover their stolen assets because the exchange failed to prevent money laundering.

In the class-action lawsuit filed on August 16 in the U.S. District Court for the Western District of Washington, the plaintiffs claimed that their cryptocurrencies were stolen and that the thieves sent the funds to Binance to "sever the connection between the ledger and their digital assets," making them untraceable.

Three plaintiffs have filed a civil lawsuit against Binance and former CEO CZ. Source: PacerMoniter

The plaintiffs argue that a key attribute of cryptocurrency transactions is the "permanent record of those transactions" on the blockchain, which makes them "permanent and accurately traceable."

"Therefore, if there is no place like Binance.com to launder money, if bad actors steal someone else's cryptocurrency, authorities may eventually be able to track them down by retracing their steps on the blockchain," the class action lawsuit states.

The plaintiffs claim that Binance was an integral part of the money laundering process, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

Binance in Trouble with Class Action

Bill Hughes, senior counsel and director of global regulatory affairs at Ethereum development company Consensys, said he was “skeptical” that the lawsuit would prove the allegations.

In an Aug. 20 post to X, Hughes said the new class action lawsuit is a “natural and foreseeable follow-on civil action” designed to capitalize on the government’s prosecution.

However, Hughes also said that the lawsuit put Binance in a “trouble” and said that if the lawsuit goes to trial, it could have a significant impact on the cryptocurrency industry.

Source: Bill Hughes

“If this case gets further into the investigation and even enters the decisive pre-trial motion stage, the effectiveness of blockchain analysis itself and on-chain asset recovery will be put on trial,” he said.

“Binance will be incentivized to talk about tracing and recovery - to be honest, this is a difficult position to be in if you care about this industry,” Hughes added.

“The validity of the blockchain analysis itself and on-chain asset recovery will be tried.”

In November 2023, CZ pleaded guilty to violating U.S. money laundering laws and resigned as Binance CEO as part of a settlement with authorities. Binance agreed to pay a $4.3 billion fine for a “civil regulatory enforcement action.”

In April, a federal judge sentenced CZ to four months in prison, shorter than the three years requested by federal prosecutors. He began serving his sentence in June and is due to be released in September.

The U.S. Securities and Exchange Commission (SEC) also filed a lawsuit against Binance in June 2023, accusing the exchange and CZ of misleading market surveillance controls and artificially inflating its trading volume. On June 28, the court approved most of the case to go to trial.