'PigButchering'VictimSlapsBinance,Ex-CEOWithRICOSuit
By Brian Dowling
Law360 (February 26, 2024, 9:01 PM EST) -- Binance and the cryptocurrency exchange's former CEO let criminal syndicates run fraud schemes through its platform by flouting laws against money laundering and money transmitting, according to an $8.1 million civil racketeering suit filed in Boston federal court.
The lawsuit was filed Friday in the U.S. District Court for the District of Massachusetts by 75-year-old Leonard Licht, a widower and resident of Plano, Texas, who lost $2.7 million — nearly all of his life savings — in 2021 and 2022 after falling victim to a so-called pig-butchering scheme run by a criminal syndicate in Cambodia.
The syndicate convinced Licht to invest in a nonexistent crypto-mining operation and then used Binance to withdraw the funds he originally sent in the form of the Tether cryptocurrency and "vanish into thin air."
The lawsuit lays the responsibility for the fraud at the feet of Binance Holdings Ltd.; its U.S. division, BAM Trading Services; and chief executive Changpeng Zhao, who "knowingly and willfully provided the figurative 'getaway car'" to criminal operators like the Cambodian syndicate by not following federal law for money-transmitting businesses. Licht seeks triple his losses, or $8.1 million, plus attorney fees.
"When a money-transmitting business like Binance violates anti-money-laundering rules, that has consequences for real people," an attorney for Licht, Aaron M. Katz of Aaron Katz Law LLC, told Law360 on Monday. "There are real innocent victims of that conduct, and Lenny Licht is one of those victims."
Binance and Zhao were not immediately available for comment on Monday.
In November, the company and Zhao, who resigned as CEO after pleading guilty, admitted flouting U.S. criminal laws against money laundering and running an unlicensed money-transmitting business. The exchange has agreed to pay a $1.8 billion fine and forfeit $2.5 billion, while prosecutors have indicated that they want Zhao to serve 18 months in prison. Investors in Binance are also suing the company and Zhao for allegedly turning a blind eye to potential money laundering and terrorist financing.
Licht said Binance and Zhao deliberately chose to allow the criminal operators to use Binance and to ignore a raft of U.S. laws that would have identified the Cambodian crime ring that preyed on him and others. If the crime ring had been identified as a money-laundering group, law enforcement could have frozen the stolen funds before they were changed out for fiat currency and returned the money to Licht, he said in the lawsuit.
But Binance and Zhao craved the transaction fees they earned on the exchange and feared how compliance with the U.S. laws could affect its goal to increase market share, according to the lawsuit. From 2017 to 2022, transactions by Binance users in the United States generated $1.6 billion in fees for the exchange, the suit says.
The lawsuit said Binance and Zhao knew they were facilitating criminal activity by not conducting "know your customer" diligence as required by the federal Bank Secrecy Act. The complaint points to a communication from a Binance executive to a colleague saying the company should make a banner saying, "Is washing drug money too hard these days? Come to Binance, we got cake for you."
In an attempt to conceal its failures to comply with federal law, Binance created BAM Trading Services, which operated as Binance.US. It registered as a money-transmitting business with the Financial Crimes Enforcement Network and made "at least superficial" efforts to comply with the Bank Secrecy Act, the lawsuit said.
The company promised that U.S. customers would be directed to make transactions on Binance.US, but a substantial number of the transactions by U.S. customers remained on the original, unregulated exchange, the lawsuit said.
In the lead-up to Zhao's and the company's guilty pleas in the criminal case, Binance touted its legal compliance and work with law enforcement to squelch pig-butchering schemes, a type of crypto fraud that occurs when a scammer convinces a victim to send funds to a purported crypto investment opportunity with the promise of high returns before absconding with the money. Binance said it was able to identify and fight illicit actors and stop them from withdrawing "ill-gotten gains" from the exchange.
"This essentially amounts to an admission by Binance that registering with FinCEN and complying with United States anti-money laundering laws equip Binance to do the very thing that would have enabled Lenny to recover the [Tether] that was stolen from him — identify suspicious transactions and users, freeze the accounts at issue and facilitate law enforcement's seizure of the assets in the accounts and the return of those assets to their rightful owners," Licht said in the lawsuit.
Licht is represented by Aaron M. Katz, Keira Zirngibl and Patrick Dolan of Aaron Katz Law LLC, and by Eric Rosen and Constantine P.
Counsel information for Binance and Zhao was not immediately available on Monday.
The case is Licht v. Binance Holdings Limited et al., case number 1:24-cv-10447, in the U.S. District Court for the District of Massachusetts.
--Editing by Karin Roberts.
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