$15 Million Scandal: How Binance Violated US Financial Regulations

$15 Million Scandal: How Binance Violated US Financial Regulations


A new report from Reuters details how Binance violated U.S. financial regulations by mixing consumer money with company revenue, potentially putting client assets at risk.

A new report from Reuters details how Binance Crypto exchange, the largest digital currency exchange in the world, violated United States financial regulations by mixing consumer money with company revenue in the years 2020 and 2021.

A bank document examined by the latest information organization revealed that on February 10, 2021, Binance Crypto exchange combined $15 Million from a customer-funded account with $20 Million from a company account.

Reports by 3 previous United States regulatory authorities, the money transfers at Binance Crypto exchange outlined by Reuters show a lack of internal controls to guarantee that user cash were readily identified and segregated from business income. They argued that by hiding the whereabouts of client assets, the mixing of these funds put client assets at danger. Customers of Binance Crypto exchange shouldn’t “need a forensic accountant to find where their money is,” reports by John Reed Stark, a previous director of the Securities and Exchange Commission’s Office of Internet Enforcement.

Targeted by the SEC

We previously informed that the Securities and Exchange Commission (SEC) has targeted plenty of exchanges operating in the  United States for operating in violation of the security laws.

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Gary Gensler, the chairman of the SEC, made the assert that numerous digital currency exchanges that provide securities to consumers in the  United States are in violation of regulations requiring licensed broker-dealers to guard client funds by segregating them from business assets. He stated at an event in May that “their business models tend to be built on taking customer funds and commingling it.” The SEC has initiated a crackdown on a number of digital currency corporations in the year. Despite the fact that it has not in particular  targeted Binance Crypto exchange (the CFTC did), it has sued Changpeng Zhao, its founder and CEO.

Reports by 3 previous United States regulatory authorities, the money transfers at Binance Crypto exchange outlined by Reuters show a lack of internal controls to guarantee that user cash were readily identified and segregated from business income. They argued 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 Commission’s Office of Internet Enforcement, stated that:

Customers of Binance Crypto exchange shouldn’t need a forensic accountant to find where their money is.

Financial company customers may suffer whole lot of losses because of  the mixing of consumer and business cash. The founder of the defunct FTX Trading Ltd digital 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 financial 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

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Nonetheless, Reuters is quick to add that, regardless of these findings, there was no indication that Binance Crypto exchange customer funds were anytime lost or stolen.

Silvergate Bank Connection

The Reuters investigation revealed that company earnings were transferred to Binance Crypto exchange Holdings, the exchange’s 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 assert that Binance Crypto exchange combined client funds and business profits in a third Silvergate account that belonged to a Zhao-controlled Cayman entity in February 2021. Reports by the source with knowledge of Binance’s group finances and corporate messaging, Binance Crypto exchange transferred money from this third account into the dollar-linked digital currency BUSD. Blockchain Tech data outlines that betwixt January 2020 and December 2021, Binance Crypto exchange purchased at least $18 Billion in BUSD.

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Regulatory authorities argued that Binance Crypto 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 digital currencies. The CFTC has filed civil accusations against Binance Crypto exchange for allegedly willfully evading United States commodities regulations by “intentionally structuring entities and transactions” to do so.

The previous  30 days, it has emailed its Canadian customers to reveal its decision to withdraw from the Canadian market likewise, owing to new stringent Government regulation that would make conducting its business there unfeasible.

Binance Crypto exchange denies Reuters’ claims

Binance Crypto exchange has rejected most of the states made against it. The corporation asserted that the research relied on anonymous sources and lacked concrete proof regardless of acknowledging certain prior regulatory failings.

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The spokesman for Binance Crypto 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 digital 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 Patrick Hillmann took to Twitter to discredit the report:

The entire post detailing the Reuters investigation can be accessed here.

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