Quick Take: Binance Holdings Limited v. Forbes Media LLC
Virtual currency has been a hot topic for some time, but a case filed last week presents a unique intersection of media law and cryptocurrency regulation. William Kraus and Jennifer Dukarski give their quick take on Binance v. Forbes.
Reporting of the “Tai Chi” Document
On October 29, 2020, Forbes published an article entitled “Leaked ‘Tai Chi’ Document Reveals Binance’s Elaborate Scheme To Evade Bitcoin Regulators”[1] claiming that one of the world’s largest virtual currency exchanges “conceived of an elaborate corporate structure designed to intentionally deceive regulators and surreptitiously profit from crypto investors in the United States.”
The basis of the article is a 2018 presentation “thought to be created by a senior executive and obtained by Forbes” setting forth the use of a “Tai Chi entity”[2] in the United States “to distract regulators with feigned interest in compliance.” The article states that the presentation outlines a process to “move revenue in the form of licensing fees and more to the parent company, Binance” and to teach potential customers “how to evade geographic restrictions while technological work-arounds were put in place.”
The article further claims that the presentation outlines an “enforcement mitigation” strategy, “explicitly mention[ing] the need to undermine the ability of ‘anti-money laundering and U.S. sanctions enforcement’ to detect illicit activity” and to “distract[] the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the New York Department of Financial Services (NYDFS),” among other things.
Binance’s Response and Lawsuit
On November 18, 2020, Binance brought suit against Forbes as well as the staff writer and contributing writer who wrote and reported the story.[3] In its complaint, Binance alleges that the statements from the October 29th article were “false and defamatory” and that “[n]either Binance, nor anyone on its behalf, created the purported 2018 slideshow presentation.” The complaint further alleges that “Binance also has not implemented any of the suggestions in that proposal, which was created by a third party.”
Based on these allegations, Binance claims that statements contained in the article constituted defamation, with the exchange seeking compensatory and punitive damages, as well as a retraction and other relief.
Quick Takes
William Kraus, Shareholder at Butzel Long: It’s fair to say that the Forbes article comes at a moment of intense regulatory scrutiny of digital currencies. In just the last two months, we’ve seen parallel civil and criminal actions against another major exchange (BitMEX), the release of the long-awaited cryptocurrency enforcement framework by the DOJ’s Cyber-Digital Task Force, and the first action of FinCEN against a virtual currency “mixer.”[4]
These are significant developments for the virtual currency industry, and a common thread between them is a regulatory push for the industry to conform to the recognized anti-money laundering (AML), know-your-customer (KYC), and combating the financing of terrorism (CFT) standards followed by brick-and-mortar financial institutions.
This push makes sense given what seems to be a long term U.S. goal of “normalizing” cryptocurrency to operate more like traditionally regulated instruments, while further tackling the panoply of risks posed by anonymous participants in this space. While some in the industry have been slow to engage with regulators seeking to advance those goals, Binance is actually one of a relatively small number of exchanges that have attempted to navigate the patchwork of federal and state law that has driven many to avoid the U.S. market altogether.
Against that backdrop, the claims made by the Forbes article—essentially that Binance was feigning compliance with express regulatory priorities of the U.S. government—will almost certainly get the attention of financial watchdogs and likely place even greater scrutiny on the industry.
Jennifer Dukarski, Shareholder at Butzel Long: As we push into a world of emerging technologies, similar to the ones underlying digital currencies, many questions may arise based on the statements of those involved in the industry. It’s unsurprising that, at this stage in cryptocurrency, we’re seeing questions and purported leaks. But even given all of the regulatory issues and novelty associated with digital currency, at its heart, Forbes faces a traditional defamation claim.
To sustain its claim, Binance will need to demonstrate that Forbes made and published one or more false and defamatory statements of fact, of and concerning Binance. The statements must not be protected by privilege or authorization and may need to rise to the level of actual malice.
In its complaint, Binance points to certain phrases in the article as being false or misleading, but a court will consider each of these in “the context in which the statement appears.”[5] This will allow the court to balance the statements in question within the context of the greater article which includes a discussion on other strategies that “may have been…considered” and notation of other regulatory actions airing concerns about Binance. At the same time, the article also notes that “Binance.US has been a paragon of corporate American citizenship, both playing nice with regulators, and winning a shining reputation with a series of philanthropic ventures.”
Further, in a defamation claim, a court will establish whether the statements made are statements of fact or if they are merely opinion, rhetorical hyperbole, loose or figurative language, or vigorous epithets. Of the allegedly defamatory statements, it is possible that a court may have to address whether “ulterior motive,” “red flag,” and “elaborate scheme” fall within statements of fact or not.
Overall, this should be a fascinating case that will combine the base foundation of defamation with the exciting buzz of cryptocurrency and hot areas of regulatory interest.
Conclusion
Butzel Long continues to track, analyze, and advise on a variety of issues surrounding media law and the rapidly evolving regulatory landscape facing virtual currency businesses. William Kraus and Jennifer Dukarski are Shareholders in Butzel Long’s Ann Arbor office.
William Kraus
734.213.3434
krausw@butzel.com
Jennifer Dukarski
734.213.3427
dukarski@butzel.com
[1] Michael del Castillo, Leaked ‘Tai Chi’ Document Reveals Binance’s Elaborate Scheme To Evade Bitcoin Regulators, Forbes, https://www.forbes.com/sites/michaeldelcastillo/2020/10/29/leaked-tai-chi-document-reveals-binances-elaborate-scheme-to-evade-bitcoin-regulators/?sh=3bce78ea2a92
[2] The article describes Tai Chi as “a Chinese martial art whose approach is built around the principle of ‘yield and overcome,’ or using an opponent’s own weight against him.”
[3] Binance Holdings Limited v. Forbes Media LLC, et al., No. 2:20-cv-16398-JMV-JAD (D.N.J.)
[4] FinCEN Assessment of Civil Penalty, In the Matter of Larry Dean Harmon d/b/a Helix, No. 2020-2. A “mixer . . . charg[es] customers a fee to send bitcoin to a designated address in a manner designed to conceal and obfuscate the source or owner of the bitcoin.” Id. at Attachment A.1.A.2.
[5] Romaine v. Kallinger, 109 N.J. 282, 290; 537 A.2d 284 (1988).
