Binance, big lawsuit risk from Italy
Binance, big lawsuit risk from Italy

Binance, big lawsuit risk from Italy

By Eleonora Spagnolo - 6 Jul 2021

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Binance is in trouble as it risks facing a lawsuit to compensate a group of Italian and international investors. 

The firm Lexia Avvocati of Milan, in collaboration with the Swiss Blockchain Consortium, has in fact been commissioned to obtain compensation for the amounts invested and the damages suffered by a group of traders who traded on futures and who found themselves unable to access the Binance platform several times during times of high market volatility. 

The letter, which was addressed to various Binance offices and CEO Changpeng Zhao, outlines the reasons that could lead to legal action. 

It was signed by lawyers Francesco Dagnino, Angelo Messore and Michele Mennoia

The reasons for the lawsuit against Binance 

The problems for the aggrieved group of traders began on 8 February 2021. That was the day Elon Musk announced that Tesla had invested in bitcoin. That tweet was followed by frightening market volatility (to the upside). However, the traders who have now turned to lawyers could not access their Binance account where they had open positions in cryptocurrency futures trading. As a result, their positions were liquidated because they were unable to take action to adjust their settings based on the market movement taking place. 

On 23 February, Binance publicly admitted that there had been a glitch in the platform and invited those who had experienced the malfunction to file a report at a special address.

However, lawyers say, once the complaint was opened, the victims received a very modest compensation proposal in response: 

“In response to such claims Binance offered a trifling amount to compensate the losses suffered by the Customers, who had no choice but o refuse such risible proposals”.

This is what the lawyers write in the note sent to Binance. 

Moreover, they add, the episode of 8 February did not remain isolated. Other problems with the platform occurred on 19 May, in connection with the turmoil following China’s ban on mining activities, but also on other days, which have been identified as follows:

  • 18 April 2021,
  • 5 May 2021,
  • 28 May 2021,
  • 4 June 2021. 

This leads lawyers to argue that: 

“The Customers are aware Binance has not taken any remedial actions thus far to fix the operation of the System”.

The same concept is reiterated in other parts of the letter, which in fact summarizes what happened: traders were harmed because the platform was inaccessible, the episodes have been repeated several times, and Binance has not been able to adequately compensate the victims of the malfunctions.

In addition to this technical aspect, however, there is also another regulatory one. In fact, the lawyers write:

“It appears that Binance has been offering trading services in financial instruments, – such as the Futures – without being authorized in Europe to operate as investment firm in accordance with the framework set out under Directive 2014/65/EU (the “MiFID 2”) and that no equivalent license has been granted to Binance to carry out such services in other non-EU jurisdiction, such, for instance, in Switzerland”.

It is precisely this aspect that complicates the situation as investors would have been deprived of the protections guaranteed by law for those who trade. 

Finally, there is no real contract between Binance and the traders who access its services. 

For all these reasons, the law firm is asking the platform to be contacted by 12 July 2021 to quantify the damages to which investors have been exposed.

If this does not happen, the law firm will not only initiate lawsuits, but will also report the situation to the European and Swiss authorities and ask them to take action against Binance, even going so far as to demand that the site be shut down both in Europe and in Switzerland

One of the consequences is that Binance’s funds will be frozen in order to protect the interests of its customers. 

Finally, the text concludes by adding that there are other people who are ready to take legal action because of the losses they have suffered.

This action takes the form of a real class action, so much so that there is also a form where other investors who feel harmed by Binance can get in touch with Lexia and assess their position. 

Binance’s troubles

It seems to be a difficult period for Binance from a legal point of view. The Italian affair is likely to complicate the exchange’s position if it is actually established that it lacks the authorization to operate as a trading platform in Europe. 

This situation follows what has already happened in the Cayman Islands, where the local authorities have already made it known that they have not issued any authorizations to Binance. Also in the UK, the FCA has intervened to clarify that Binance Markets Limited (and not Binance as a whole) is not authorized to operate. 

In short, there are several jurisdictions that are shedding a light on the operations of Binance. This should lead to the exchange headed by Changpeng Zhao having to interact with the authorities to avoid worse consequences. 

There is currently no official comment from Binance on the matter. But a recent tweet dedicated to the ongoing diatribes in the UK reads as follows: 

“We take our compliance obligations very seriously, and we are committed to working collaboratively with regulators to shape policies that protect consumers, encourage innovation, and advance the industry”.

Now all that remains is to wait until July 12 to see if Binance will respond to the law firm by offering fair compensation to traders assisted by Lexia. If not, a lawsuit is looming that could seriously jeopardize the operation of the world’s largest cryptocurrency exchange. 


Eleonora Spagnolo

Journalist passionate about the web and the digital world. She graduated with honours in Multimedia Publishing at the University La Sapienza in Rome and completed a master's degree in Web and Social Media Marketing.

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