Binance Sued in Italy Over Exchange Outages, Hearing This Week
Global cryptocurrency exchange Binance is due to appear in an Italian court on Thursday over a class-action lawsuit filed by a group of investors seeking damages for losses suffered during platform outages at critical trading times last year.
A group of Italian and international Binance users filed suit against the company and CEO Changpeng Zhao in November 2021, citing multiple incidents when the platform went offline and locked users out of the exchange. The investors allege the outages made it impossible for them to change their trading positions and led to “tens of millions” in losses.
Binance is not the only crypto exchange to go offline when trading volumes go up. When big news drives crypto prices up, traders flock to exchanges, and exchanges have historically tended to buckle under the pressure. One incident cited by the disgruntled investors occurred in February 2021, when multiple high-profile crypto trading platforms like Binance, Kraken and Gemini experienced technical issues due to increased trading loads over news that Elon Musk’s Tesla had invested $1.5 billion in bitcoin.
The suit also alleges Binance violated Italy’s financial regulations when it let Italian users trade leveraged futures on the platform. Futures are trading agreements to sell an asset at a set price and time in the future.
Read more: Exchange Outages Are Going Mainstream: What Robinhood Can Learn From Crypto
Legal action against the exchange was already taking shape when Italy’s financial regulator warned in July last year that Binance was not authorized to provide investment services in the country. Earlier this year, Binance was approved to register in a regulator-maintained list of crypto service providers in Italy. The registration itself does not imply compliance with local regulations and is only a precursor to subjecting firms to anti-money laundering standards in the country.
Day in court
Last year, a group of Italian Binance users approached the Swiss blockchain consortium looking for advice on how to recover losses tied to outages, according to Michele Ficara Manganelli, director of the consortium.
“Being Italian-speaking and having a more advanced market than the Italian one, we are one of the main points of reference for Italian investors,” Manganelli said in an email to CoinDesk. The consortium called in Milan-based law firm Lexia Avvocati to represent the investors.
Although Binance did offer to compensate affected investors, the proposed compensation was a “negligible” amount, according to Francesco Dagnino, managing partner at Lexia Avvocati.
“We've been told by some investors that even those who accepted were not refunded,” Dagnino said during an interview with CoinDesk, referring to Binance’s offer to compensate users for losses sustained due to the outages.
Binance was also offering futures trading to Italian customers without regulatory approval and without complying with local laws, Dagnino said, addressing the other allegation against Binance. “It is absolutely clear that when you are selling a future, especially with that type of leverage, it doesn't matter what the underlying asset is, it’s always a derivative and always a financial product,” Dagnino said.
Read more: Crypto Futures Trading, Explained
Dagnino said the next step is for the court to decide on whether it will accept the class-action lawsuit, after which investors can begin to join the suit. There are at least 100 investors involved in the case, but more will join, Dagnino said. Mandanelli added that the suit will be open to Italian and European Binance investors seeking damages.
Binance has not yet joined the proceeding, which means it has not filed any statements of defense before the deadline set at 10 days before the hearing. Dagnino says it’s not mandatory to file anything, and although he is uncertain if Binance will show up at the hearing, he’s hopeful it will, given the company’s recent efforts to register an office in Italy and be entered into the list of virtual asset service providers operating in the country.
“[Binance] made major announcements about their interest in the Italian market and the Italian people. So I don't know. … I would expect that they want to clarify these matters. But we will see,” Dagnino said.
If someone from Binance does not show up on Sept. 15 at the Court of Milan, a judge will decide on the case without Binance present and the company will lose the right to file statements of defense.
Binance did not respond to requests for comment by press time.
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