A new report from Reuters details how Binanceย Cryptoย exchange, the largest digitalย currency exchange in the world, violated Unitedย States financial regulations by mixing consumer money with company revenue in the years 2020 and 2021.
A bank document examined by theย latestย information organization revealed that on February 10, 2021, Binanceย Cryptoย exchange combined $15 Million from a customer-funded account with $20 Million from a company account.
Reportsย by 3 previous Unitedย States regulatoryย authorities, the money transfers at Binanceย Cryptoย exchange outlined by Reuters show a lack of internal controls to guarantee that user cash were readily identified and segregated from business income. They arguedย that by hiding the whereabouts of client assets, the mixing of these funds put client assets at danger. Customers of Binanceย Cryptoย exchange shouldnโt โneed a forensic accountant to find where their money is,โ reportsย by John Reed Stark, a previous director of the Securities and Exchange Commissionโs Office of Internet Enforcement.
Targeted by the SEC
We previously informed that the Securities and Exchange Commission (SEC) has targeted plentyย of exchanges operating in theย Unitedย States for operating in violation of the security laws.
Gary Gensler, the chairman of the SEC, made the assertย that numerous digitalย currency exchanges that provide securities to consumers in theย Unitedย States are in violation of regulations requiring licensed broker-dealers toย guard client funds by segregating them from business assets. He stated at an event in May that โtheir business models tend to be built on taking customer funds and commingling it.โ The SEC has initiated a crackdown on a number of digitalย currency corporations inย theย year. Despiteย theย factย that it has not inย particularย targeted Binanceย Cryptoย exchange (the CFTC did), it has sued Changpeng Zhao, its founder and CEO.
Reportsย by 3 previous Unitedย States regulatoryย authorities, the money transfers at Binanceย Cryptoย exchange outlined by Reuters show a lack of internal controls to guarantee that user cash were readily identified and segregated from business income. They arguedย that by hiding the whereabouts of client assets, the mixing of these funds put client assets at danger. John Reed Stark, a previous director of the Securities and Exchange Commissionโs Office of Internet Enforcement, stated that:
Customers of Binanceย Cryptoย exchange shouldnโt need a forensic accountant to find where their money is.
Financial company customers may suffer wholeย lotย of losses becauseย ofย the mixing of consumer and business cash. The founder of the defunct FTXย Tradingย Ltd digitalย currency exchange, Sam Bankman-Fried, was accused by the SEC and CFTC in December of having for years mixed customer money at his trading business and used those assets to pay real estate acquisitions, political contributions, and deal financialย resources investments. Bankman-Fried has asserted that he did not intentionally mix any monies and has entered a not guilty plea to the accusation of fraud
Nonetheless, Reuters is quick to add that, regardlessย of these findings, there was no indication that Binanceย Cryptoย exchange customer funds were anytime lost or stolen.
Silvergate Bank Connection
The Reuters investigation revealed that company earnings were transferred to Binanceย Cryptoย exchange Holdings, the exchangeโs Cayman Islands holding company. Customer funds poured into the Silvergate account of Key Vision Development, a Seychelles-based company that Changpeng Zhao owned.
The sources assertย that Binanceย Cryptoย exchange combined client funds and business profits in a third Silvergate account that belonged to a Zhao-controlled Cayman entity in February 2021. Reportsย by the source with knowledge of Binanceโs group finances and corporate messaging, Binanceย Cryptoย exchange transferred money from this third account into the dollar-linked digitalย currency BUSD. Blockchainย Tech data outlines that betwixt January 2020 and December 2021, Binanceย Cryptoย exchange purchased at least $18 Billion in BUSD.
Regulatoryย authorities arguedย that Binanceย Cryptoย exchange may have been able to hide funds from tax authorities in the countries where it does business by shifting money betwixt accounts and into digitalย currencies. The CFTC has filed civil accusations against Binanceย Cryptoย exchange for allegedly willfully evading Unitedย States commodities regulations by โintentionally structuring entities and transactionsโ to do so.
Theย previousย 30ย days, it has emailed its Canadian customers to reveal its decision to withdraw from the Canadian market likewise, owingย to new stringent Government regulation that would make conducting its business there unfeasible.
Binanceย Cryptoย exchange denies Reutersโ claims
Binanceย Cryptoย exchange has rejected most of the states made against it. The corporation asserted that the research relied on anonymous sources and lacked concrete proof regardlessย of acknowledging certain prior regulatory failings.
The spokesman for Binanceย Cryptoย exchange, Brad Jaffe, angrily refuted these states, making it clear that the Silvergate Bank accounts were only ever used to make it easier for consumers to buy digitalย currency, never as a place to deposit money.
Jaffe insisted,
There was no mixing at any point since these are 100 percent corporate funds.
Chief Strategy Officer Patrickย Hillmann took to Twitter to discredit the report:
Weโve addressed this on numerous occasions. We keep our user and corporate funds on completely separate ledgers. Thereย is declining ROI on responding to these types of tabloid stories. We know who their sources are and @Reuters will be embarrassed when it becomes public.
โ Patrick Hillmann (@PRHillmann) May 23, 2023
The entire post detailing the Reuters investigation can be accessed here.
