The world’s largest crypto exchange Binance commingled billions in user funds with its revenue in 2020 and 2021, according to three sources familiar with the matter. In fact, The exchange earlier admitted to mistakenly mixing consumer funds with B-token reserves.
The commingling of funds happened almost daily in accounts held at US-based crypto-friendly bank Silvergate Bank. The sums of funds ran into billions of dollars, as per an insider with direct knowledge of Binance’s group finances.
Binance failed to comply with U.S. financial rules that require keeping customer money separate from the company’s accounts. There’s a lack of internal controls to differentiate customer funds from company revenues.
Reuters didn’t verify exact figures or frequency. However, it reviewed a bank record dated February 10, 2021, showing Binance mixed $20 million in corporate funds with $15 million from an account that received customer money.
John Reed Stark, a former chief of the Securities and Exchange Commission’s Office of Internet Enforcement, said “Binance customers shouldn’t need a forensic accountant to find where their money is.” Binance spokesperson Brad Jaffe has denied mixing customer deposits and company funds.
Binance used Silvergate Bank accounts to hold company revenues. While consumer funds came in from Seychelles-based Key Vision Development, which was controlled by Binance CEO Changpeng Zhao. Paxos-issued BUSD played a vital role in these transactions, but regulators stopped it.
Binance Under Regulatory Scrutiny in the US
Binance has been under heightened regulatory scrutiny from regulators in the US. In March, US CFTC sued Binance and CEO Changpeng “CZ” Zhao for violating commodities laws and operating an illegal derivatives exchange. The DOJ is also probing Binance for several matters, including violating sanctions against Russia.
SEC Chair Gary Gensler earlier said many crypto exchanges are not complying with laws requiring registered broker-dealers to separate client money from corporate assets. The SEC has brought enforcement actions against many crypto firms and exchanges but didn’t come with any action against Binance. Gensler revealed that “Their business models tend to be built on taking customer funds, commingling it.”
CoingGape Media reported that SEC is close to bringing an enforcement action against Binance. However, it’s unclear whether Binance or Binance.US is in the SEC’s crosshair.
Meanwhile, Binance CEO continued to refute these reports by Reuters saying it missed critical facts and details mentioned are false. Binance’s chief communication officer Patrick Hillman took to Twitter to debunk the Reuters report claiming the story is “weak” and has “zero evidence.”
Let me explain just how desperate a journalist @Reuters is to publish a negative story. The whole base of their story this morning, is that when users purchased BUSD (Paxos) from Binance, they were taken to a transaction page that had the term “deposit” on it. Users were making a…
— Patrick Hillmann (@PRHillmann) May 23, 2023