Binance.US confirms Binance CEO’s trading firm acted as market maker on its platform
Binance.US, the US partner of global cryptocurrency exchange Binance, has confirmed that a trading firm managed by Binance CEO Changpeng Zhao operated as a market maker on its platform. This revelation came after Reuters reported on Thursday, citing banking records and company messages, that Binance had secret access to a bank account belonging to its supposedly independent US partner and transferred large sums of money from the account to the trading firm, Merit Peak Ltd. While Merit Peak stopped all activity on the Binance.US platform in 2021, the revelations suggest that Binance controlled the finances of Binance.US, despite publicly stating that the American entity is “fully independent” and operates as its “US partner.” Binance transferred over $400 million from the account at California-based Silvergate Bank to Merit Peak between January and March of 2021, according to Reuters.
Binance.US executives were concerned by the outflows from the Silvergate account to Merit Peak because the transfers were taking place without their knowledge, according to company messages reviewed by Reuters. The global Binance exchange is not licensed to operate in the United States, and regulators are concerned that some market makers have received undisclosed special treatment from crypto exchanges that may disadvantage customers. The activities of crypto platforms’ market makers have drawn regulatory and political focus since the collapse of major exchange FTX in November. The US Securities and Exchange Commission accused FTX founder Sam Bankman-Fried in December of granting “special privileges” to his trading firm Alameda Research, allowing him to siphon off billions of dollars in FTX customer money. Bankman-Fried has pleaded not guilty.
The bankruptcy in 2022 of a string of major crypto firms has also stoked calls from politicians for greater clarity on how regulators assess ties between US banking and the cryptocurrency sector. In December, US senators Elizabeth Warren and Tina Smith wrote to top financial regulators including US Federal Reserve Chair Jerome Powell, asking about their assessment of the risks to banks and the banking system stemming from exposure to crypto. The letter cited Silvergate Capital Corp as among the banks that “relied heavily on their crypto customers.”
Zhao has not directly addressed the report, but on Friday he tweeted, “Remember 4.,” tagging a previous post in which he listed his “Do’s and Don’ts” for 2023. The fourth item on the list was “Ignore FUD, fake news, attacks,” using an acronym for “fear, uncertainty and doubt” often used in crypto in relation to news perceived as negative. Binance’s chief strategy officer, Patrick Hillmann, told the Wall Street Journal and Bloomberg on Wednesday that Binance expected to pay penalties to resolve US investigations into the company. Hillmann said Binance had been built by software engineers unfamiliar with laws and rules on bribery and corruption, money laundering and economic sanctions, but earlier “gaps” in its regulatory compliance had since been closed. “It’s a tremendous burden,” Hillmann told Bloomberg. “We just want to put it behind us.”
A spokesperson for the global Binance exchange, which did not respond to Reuters’ questions for the story on Thursday, told crypto news outlet CoinDesk that the transfers were “a Binance.US issue.” However, U.S. Senator Roger Marshall told Reuters, “Something fishy is going on here that clearly doesn’t pass the smell test. Congress needs answers, and Binance.US and Silvergate are obligated to give them to us.” The revelations could potentially have a significant impact on the credibility of the Binance brand, which has been the subject of regulatory scrutiny in several countries, including the UK and Japan, in recent years.
