Cryptocurrency giant, Binance lashed out at a recent Reuters report that had accused the exchange of mixing billions of dollars worth of customer assets with its corporate revenue in 2020 and 2021, obscuring the whereabouts of their money.
The fiasco started after the news agency alleged that Binance commingled customer funds with company revenue in breach of U.S. financial rules that require customer money to be kept separate. As per the report, billions worth of dollars were mixed almost daily in accounts Binance held at the now-bankrupt U.S. lender Silvergate Bank. As per unnamed “former insiders,” the commingling of these funds put client assets at risk by obscuring their whereabouts.
They further stated the fund flows indicated a lack of internal controls to ensure customer funds were clearly identifiable and segregated from company revenues. According to the report, Reuters could not verify the exact figure 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.
How Did Binance React?
Following the Reuters report, Binance blasted the media house calling the story “weak”. On May 23, Binance chief strategy officer Patrick Hillmann took to Twitter claiming Reuters found no evidence that Binance client monies were lost or taken.
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
In a series of Twitter threads, the Binance exec argued the report missed critical facts and was full of “conspiracy theories.” He also went on to accuse Reuters of “xenophobia” for frequently mentioning CEO Changpeng Zhao’s Chinese ethnicity. Hilman added,
“We’ve been very public about where the company had regulatory shortcomings in the past, there’s no reason for a respected news outlet like Reuters, to continue making stuff up”
Meanwhile, Binance spokesperson Brad Jaffe has denied mixing customer deposits and company funds. He noted that the Silvergate Bank accounts were not used to accept user deposits and rather used to facilitate user purchases of crypto.
Jaffe explained when users sent money to the account, they were not depositing funds but buying the exchange’s bespoke dollar-linked crypto-token, BUSD. The Binance spokesperson said this process was “exactly the same thing as buying a product from Amazon.”
Binance Stuck In Tightening Regulatory Scrutiny
Previously, a Bloomberg report in January revealed the exchange had mistakenly kept collateral for certain crypto assets it issued in the same wallet as funds belonging to customers. Furthermore, the U.S. Commodity Futures Trading Commission (CFTC) sued Binance in March for allegedly operating an “illegal” exchange and a “sham” compliance program.
Binance has been under heightened regulatory scrutiny from regulators in the US. In February, Reuters also published a report alleging Binance had secret access to a bank account of its US-based partner and transferred nearly $400 million from that account to a trading firm, Merit Peak Ltd, managed by CEO Changpeng “CZ” Zhao. It claimed Binance US executives were unaware of the outflows expressing concerns as the transfers took place without their knowledge.
Moreover, the report also cited that a person with direct knowledge of the transfers noted that an unspecified portion of the $400 million was subsequently sent to the Silvergate account of a Seychelles-incorporated firm called Key Vision Development Limited.
Crypto giant Binance moved $400 million from a bank account belonging to its purportedly independent U.S. partner to a trading firm managed by Binance CEO Changpeng Zhao, banking records and company messages show https://t.co/ktJnE7AqKE by @AABerwick @_tom_wilson_ @specialreports pic.twitter.com/1W8nD5H5a8
— Reuters (@Reuters) February 16, 2023
War On Crypto Continues
Earlier this month, John Reed Stark, a former SEC Enforcement Division lawyer warned the future of Binance might be in jeopardy, pointing out several red flags surrounding the exchange, including a lack of verifiable and trustworthy information, a CFTC action alleging regulatory violations, allegations of commingling customer funds, and a lack of proof of reserves and audited financials.
Binance's future is in jeopardy, at least that's my opinion. Having worked as a lawyer in the SEC Enforcement Division for 18 years, I was trained to spot red flags. When I read about Binance, I see a lot of red flags.
Lack of Reliable, Trustworthy Information
Just consider… pic.twitter.com/hXFahhwZuo
— John Reed Stark (@JohnReedStark) May 2, 2023
These development come amid a spike in regulatory purview regarding digital assets in the United States. Financial watchdogs especially the US Securities and Exchange Commission (SEC) and CFTC have continued targetting crypto firms under the pretext of violating the financial policies in the country. It seems the digital assets sector remains an easy target for politicians and government authorities to pin any sort of economic calamities on.