Binance Under Legal Fire in France: Investors File Lawsuit Over Alleged Misleading Practices and TerraUSD (UST) Losses

Cryptocurrency giant Binance is facing a significant legal challenge in France. Fifteen French investors have launched a lawsuit against Binance France and its parent company, Binance Holdings Limited, alleging serious misconduct. The core accusations revolve around claims of fraudulent concealment and misleading commercial practices, potentially shaking Binance’s standing in the European market and raising broader questions about crypto regulation.

What Exactly Are the Allegations Against Binance in France?

According to reports from local media, the lawsuit, filed on December 14th, accuses Binance of several breaches of French law. The investors claim that Binance was actively promoting and distributing crypto services in France before securing the necessary registration from the French financial authorities. Let’s break down the key points of the allegations:

• Operating Without Proper Registration: The plaintiffs argue that Binance engaged in commercial activities within France before obtaining the crucial Digital Asset Provider (DASP) license from the Autorité des marchés financiers (AMF). While Binance did receive this license in May 2022, the lawsuit scrutinizes their activities *prior* to this date.
• Misleading Commercial Practices: Investors are accusing Binance of employing misleading tactics in their commercial practices. The specifics point to concerns about how Binance advertised and presented certain crypto products, particularly TerraUSD (UST).
• Fraudulent Concealment: A serious charge, fraudulent concealment suggests that Binance allegedly hid or obscured crucial information from investors, leading to financial losses.
• The TerraUSD (UST) Debacle: A significant part of the lawsuit centers on the dramatic collapse of TerraUSD (UST), a stablecoin that was algorithmically pegged to the US dollar. Investors claim they suffered substantial losses – totaling over 2.4 million euros – due to the UST crash, and they argue Binance promoted UST as a safe, US dollar-backed asset, without adequately highlighting the risks.

To support their claims, the plaintiffs have reportedly included screenshots in their complaint showcasing Binance’s social media presence in France prior to obtaining the license. This includes activity on a Telegram channel named “Binance French,” suggesting a targeted outreach to the French market.

Binance’s Response: What’s Their Side of the Story?

Binance France has publicly addressed the lawsuit through a blog post, offering their perspective on the allegations. Here’s a summary of their key arguments:

• No Promotional Activities in France (Pre-License): Binance maintains that they did not engage in any promotional communications specifically targeting France during the period in question before they received their license.
• Telegram Channels as Community Forums: Regarding the “Binance French” Telegram channel, Binance argues that Telegram groups are global community spaces. They state that users are free to create and join channels based on their interests, implying the channel wasn’t an official Binance-led promotional tool.
• UST Promotion and Risk Warnings: Addressing the concerns about promoting TerraUSD (UST), Binance claims their communication focused on staking on the platform being “safe,” rather than making assurances about the inherent safety of the underlying tokens themselves. They emphasize that they consistently provide market risk warnings for crypto products and have since strengthened these warnings.

The TerraUSD (UST) Crash: A Quick Recap

For those less familiar, the TerraUSD (UST) situation was a major event in the crypto world. In May 2022, a series of events led to a catastrophic drop in the price of both LUNA (Terra’s governance token) and UST. UST was designed as an algorithmic stablecoin, aiming to maintain a 1:1 peg with the US dollar. However, it dramatically lost its peg, plummeting far below $1 and causing massive losses for investors who held UST and related assets.

The dramatic price collapse of TerraUSD (UST) in May 2022

What Could Be the Implications of This Lawsuit?

This lawsuit carries significant implications for both Binance and the broader cryptocurrency industry:

• Increased Regulatory Scrutiny: The case highlights the growing regulatory pressure on crypto exchanges worldwide. Governments are increasingly focused on ensuring investor protection and regulating crypto activities. This lawsuit could further encourage stricter regulations in France and potentially across Europe.
• Binance’s European Operations: France is a key market for Binance in Europe. A negative outcome in this lawsuit could damage Binance’s reputation and potentially impact its operations in France and other European countries.
• Investor Protection and Misleading Advertising: The case raises crucial questions about investor protection in the crypto space and the responsibilities of exchanges regarding advertising and risk disclosure. It could set a precedent for how crypto exchanges are held accountable for the information they provide to investors.
• Future of Stablecoins: The UST collapse and its role in this lawsuit underscore the risks associated with algorithmic stablecoins and the need for greater transparency and regulation in the stablecoin market.

Looking Ahead

The lawsuit filed against Binance in France is a developing situation that the crypto world will be watching closely. It serves as a stark reminder of the legal and regulatory challenges facing cryptocurrency exchanges as the industry matures. The outcome could have far-reaching consequences for Binance, crypto regulation in France, and the ongoing debate about investor protection in the volatile world of digital assets. As the legal proceedings unfold, it will be crucial to monitor the developments and understand the precedents they may set for the future of crypto regulation and exchange accountability.