Global cryptocurrency exchange Binance had secret access to a bank account belonging to its purportedly independent US partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, banking records and company messages show. Over the first three months
Global cryptocurrency exchange Binance had secret access to a bank account belonging to its purportedly independent US partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, banking records and company messages show.
The Binance global exchange, Binance CEO Zhao and Prime Trust did not respond to detailed questions about the transfers. A Silvergate spokesperson said the bank does not comment on individual customers. Reuters reported last year that Binance created Binance.US as a de facto subsidiary in 2019 in order to draw the scrutiny of US regulators away from the global exchange. Binance.US's operator, California-based BAM Trading Services, is registered with the US Treasury as a money services business, a category that includes foreign currency traders and money transmitters. BAM's beneficial owner is Zhao.
The transfers to Merit Peak took place on the bank's proprietary Silvergate Exchange Network , which Binance.US joined in November 2020 to serve its corporate clients. SEN allows these clients to transfer dollars between their accounts at the bank. Silvergate's investor prospectus says SEN transfers are"push only," which means they must be authorized by the account's controller.
The SEC's chair, Gary Gensler, told Bloomberg TV on Feb 10 that crypto exchanges, in general, were"co-mingling customer funds with their businesses" by also operating as broker-dealers and hedge funds that were trading against their own clients. He didn't single out Binance or other exchanges in his comments, but said firms should expect more enforcement actions by the agency.
Former regulators, along with former executives at Binance and Silvergate, told Reuters that Merit Peak's role on Binance.US created potential conflicts of interest between the exchange and its customers because Binance.US disclosed no information about Merit Peak's activities or its owner. The SEC described Merit Peak as a Binance entity when it sought information about the trading firm as part of a subpoena issued to Binance.US in December 2020.
The 2021 document that described Binance.US's technology architecture noted that an unidentified"Market Maker" was under the control of Binance.com. In a Twitter Spaces event last November, Zhao said he was a shareholder in one unspecified market maker, but stressed that it did not earn profits and was"just providing liquidity in the market."
Merit Peak gave Binance.US US$5 million to fund the"minimum balance" of the exchange's new SEN account, according to a message a senior Binance.US employee later sent to counterparts at Binance.com. The transfers to Merit Peak began soon after, the messages show. Coley followed up with Li again later that day."Can you explain more – maybe over the phone – about the flows that are happening via SEN? I want to understand them better as no one mentioned them until today when they got caught in our limit," Coley wrote.
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