Binance and billionaire founder sued in UK over alleged unauthorised crypto derivatives sales
Nearly 1,700 investors have sued Binance and founder Zhao Changpeng in London's High Court, seeking up to £150 million over alleged unauthorised sales of crypto derivatives to UK retail customers.
- Nearly 1,700 investors seek up to £150 million in compensation from Binance and Changpeng Zhao.
- The claim alleges Binance sold crypto derivatives without UK regulatory authorisation in 2019 and 2020.
- Binance says it will defend the lawsuit through the appropriate legal process.
Binance, the world's largest cryptocurrency exchange, and its billionaire founder Zhao Changpeng are facing a lawsuit in the United Kingdom brought by nearly 1,700 investors who allege the company sold high-risk crypto derivative products to retail customers without the required regulatory authorisation.
The claim was filed at the High Court in London on Monday by 1,692 investors who are seeking up to £150 million (about US$199 million) in compensation for losses allegedly incurred through trading on the platform.
According to court filings, the claimants allege that Binance offered and promoted crypto derivatives to UK retail investors in late 2019 and 2020 despite not being authorised to do so under the UK's Financial Services and Markets Act.
The lawsuit names both Binance and Zhao, as defendants.
Investors allege unauthorised sale of derivatives
The case centres on leveraged cryptocurrency derivative products that allowed traders to amplify potential gains and losses by borrowing funds to increase their market exposure.
Lawyers representing the investors argue that Binance marketed the products through promotional campaigns, online content, social media posts and email communications directed at retail customers.
The claimants contend that the derivatives constituted "specified investments" under rules established by the UK's Financial Conduct Authority (FCA) and that Binance was not authorised or exempt from the requirement to obtain regulatory approval before offering them.
According to lawyers from KP Law, many of the affected investors suffered substantial financial losses.
The firm said some clients lost tens of thousands of pounds, while others allegedly lost millions through trading activities conducted on the platform.
One of the named claimants, Tomas Sutas, reportedly invested more than £100,000 (about US$133,000) in Binance derivative products before losing the funds.
The lawsuit is structured as a group legal action involving nearly 1,700 investors.
Binance says it will defend the case
Binance said it would contest the claims through the courts.
"We do not comment on ongoing litigation. We will defend against these claims through the appropriate legal process in due course. Binance remains committed to its obligations to users and to operating in accordance with applicable law," the company said in a statement.
Court records indicate that Binance has not yet formally acknowledged service of the claim.
UK regulators have long taken a cautious approach
The FCA has maintained a cautious stance towards cryptocurrency investments for several years, repeatedly warning consumers that digital assets are high-risk investments.
In October 2020, the regulator announced a ban on the sale of crypto derivatives to retail consumers, describing such products as unsuitable for many ordinary investors. The ban came into force in January 2021.
On Tuesday, the FCA published a new framework for regulating the cryptocurrency sector while reiterating that cryptoassets remain high-risk investments.
The regulator stated that although it had recently lifted restrictions on retail access to certain crypto exchange-traded notes (ETNs), it continues to review its position regarding retail access to cryptocurrency derivatives.
"Cryptoassets are high risk investments and will remain high risk under our regime," the FCA said.
Latest legal challenge for Binance
The UK lawsuit is the latest in a series of regulatory and legal challenges faced by Binance around the world.
In 2023, Binance pleaded guilty in the United States to criminal offences relating to anti-money laundering failures and violations of international financial sanctions. The exchange agreed to pay more than US$4.3 billion in penalties to US authorities.
As part of the settlement, Zhao stepped down as chief executive, pleaded guilty to a criminal charge and later served four months in prison in the United States. He was subsequently pardoned by US President Donald Trump.
Binance has also faced regulatory difficulties in Europe.
Last week, the company withdrew its application for a licence under the European Union's Markets in Crypto-Assets (MiCA) framework from Greece after reports that the application was unlikely to be approved.
A MiCA licence would allow a cryptocurrency company to provide services throughout the European Union under a unified regulatory framework.
Without such authorisation, Binance is unable to offer crypto services to users across EU member states under the new regime that took effect on 1 July.
According to Reuters, Binance said it intends to seek authorisation through another EU member state, although it has not disclosed which country it plans to use.
UAE becomes Binance's main licensing base
Reuters reported that Binance's principal licence is now located in the United Arab Emirates after the company's efforts to secure regulatory approval in Greece collapsed this month.
The development comes as Binance seeks to maintain access to regulated markets while adapting to evolving cryptocurrency regulations in Europe and elsewhere.
The UK lawsuit remains at an early stage, with claimants seeking up to US$199 million in damages for losses they say resulted from trading products that should not have been made available to retail investors under UK financial regulations.
