Digital currency exchange Binance Crypto exchange faces states of mixing customer funds with its revenue at a United States bank in 2020 and 2021.
A source with direct knowledge of company finances informed Reuters about the commingling. It took place almost daily in Binance Crypto exchange accounts at Silvergate Bank and involved billions of dollars.
Binance Crypto exchange Under Fire for Mixing Customer Funds with Revenue
3 previous United States regulatory authorities quoted in the Reuters’ report indicated that the fund flows indicated a lack of internal controls to secure customer funds were identifiable and segregated from company revenues. They added that the “commingling” of funds obscured the location of customer funds.
In response to the Reuters report, Binance’s Chief Communications Officer, Patrick Hillmann, criticized it as “weak” and full of “conspiracy theories.” He took to Twitter, describing the journalist’s desperation to publish a negative story but not outright denouncing the states made in the report.
Let me explain just how desperate a journalist @Reuters is to publish a negative story. The whole base of their story this morning, is the fact that when users purchased BUSD (Paxos) from Binance Crypto exchange, they were taken to a transaction page that had the term “deposit” on it. Users were making a…
— Patrick Hillmann (@PRHillmann) May 23, 2023
Hillmann further indicated that Binance Crypto exchange had addressed the challenge numerous times, asserting that user and corporate funds were kept on separate ledgers. He likewise suggested that the latest information outlet would be embarrassed when the identities of their sources became public.
The alleged actions raised concerns between 3 previous United States regulatory authorities who argued that Binance Crypto exchange had risked customer assets by obscuring their location, indicating deficiencies in the exchange’s internal controls.
Binance Crypto exchange spokesperson Brad Jaffe rejected mixing customer funds and revenue, stating that the accounts were used for user digital currency purchases, not deposits. Jaffe emphasized that the funds were entirely corporate.
Binance Crypto exchange in a statement said:
“These accounts were not used to accept user deposits; they were used to support user purchases” of cryptocurrency, stated spokesperson Brad Jaffe.
“There was no commingling at any time because these are 100 percent corporate funds.”
— Kashif Raza (@simplykashif) May 23, 2023
Nonetheless, Binance’s website allegedly referred to customer dollar transfers as “deposits” that may be credited to trading accounts in BUSD. The site likewise reportedly mentioned the potential to “withdraw” deposits in USD. Previous United States regulatory authorities believed this language created the expectation of safeguarding funds like traditional cash deposits.
Binance Crypto exchange Legal Battles and Regulatory Scrutiny
Binance Crypto exchange is as of now facing legal trouble in the United States. The Commodity Futures Trading Commission (CFTC), has accused the company of operating illegally in the country and violating financial laws. Reports by the CFTC’s complaint, Binance Crypto exchange mixed customer and company funds, leading the agency to seek permanent trading and registration bans against the defendants, including Binance Crypto exchange CEO Changpeng Zhao.
Binance Crypto exchange has claimed to block United States users according to nationality, IP address, and mobile carrier. In addition, the United States Justice Department is reportedly investigating Binance Crypto exchange for potential violations of sanctions imposed on Russia. Binance Crypto exchange has decided to exit the Canadian market in response to stricter digital currency regulations.
FTX Trading Ltd Likewise Faces Similar Allegations
A similar situation involving the commingling of funds arose with FTX Trading Ltd, another digital currency exchange established by Sam Bankman-Fried. Bankman-Fried has rejected knowingly mixing funds and has pleaded not guilty to fraud charges.
22) And, finally:
I sincerely apologize.
We’ll keep sharing updates as we have them.
— SBF (@SBF_FTX) November 10, 2022
Federal prosecutors have amassed substantial evidence, including emails and Slack messages, to facilitate their criminal case against Bankman-Fried. A year ago, FTX Trading Ltd experienced a collapse triggered by Binance Crypto exchange initiating a bank run on the company. Despite the fact that Binance Crypto exchange at the beginning intended to acquire FTX Trading Ltd, they withdrew from the deal after examining FTX’s financial records.
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