Binance, the world’s largest cryptocurrency exchange platform, allegedly commingled user deposits and firm revenue in violation of financial laws, according to a special report from Reuters.
The allegations from three former insiders come months after FTX and several other cryptocurrency firms controlled by Sam Bankman-Fried filed for bankruptcy as customers and investors learned that FTX had commingled funds with sister trading company Alameda Research. Binance, a rival of FTX that had feuded with the company in the weeks before the implosion, allegedly commingled funds on a nearly daily basis in 2020 and 2021, according to three unnamed sources familiar with the matter.
Reuters found one record from Silvergate Bank, a recently defunct financial services company focused on the cryptocurrency sector, indicating that Binance mixed $20 million from a corporate account with $15 million from an account that received customer funds. Binance reportedly funneled revenues into Silvergate Bank through a holding firm in the Cayman Islands, while customer funds entered the financial institution through a separate firm in the Seychelles.
Binance denied the claims about commingled funds in a statement to Reuters. “These accounts were not used to accept user deposits; they were used to facilitate user purchases,” Binance spokesperson Brad Jaffe told the outlet. “There was no commingling at any time because these are 100% corporate funds.”
The allegations come two months after officials at the Commodity Futures Trading Commission filed civil enforcement actions against Binance chief executive Changpeng Zhao for “numerous violations” of financial laws. The regulatory agency alleged that Zhao directed employees and customers to circumvent regulations, failed to require identity verification, and neglected other compliance efforts meant to prevent terrorist financing and money laundering.
Binance, which was previously based in China, has also been investigated by the Justice Department for alleged money laundering and tax infractions.
Actions against the company occur amid a broader crackdown in the nascent cryptocurrency sector from lawmakers and regulators: Securities and Exchange Commission Chairman Gary Gensler recently announced a settlement with cryptocurrency exchange Kraken after the firm failed to register its staking-as-a-service initiative, under which retail investors are compensated for holding certain digital assets, and charged Genesis Global Capital and Gemini Trust Company for raising billions of dollars in cryptocurrency assets through an unregistered offer.
The financial misconduct at FTX allegedly enabled Bankman-Fried and his fellow inexperienced executives to purchase lavish tropical real estate in the Bahamas, contribute extensively to Democratic political candidates, and make donations to media outlets.
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Bankman-Fried was initially charged in December with crimes such as conspiracy to commit wire fraud, conspiracy to commit securities fraud, and conspiracy to defraud the Federal Election Commission through campaign finance violations. Another superseding indictment unveiled in February added four new charges, including conspiracy to commit bank fraud and conspiracy to operate an unlicensed money transfer business. Bankman-Fried was also charged in March with paying bribes to one or more members of the Chinese Communist Party.
The entrepreneur has pleaded not guilty and is attempting to dismiss 10 of the 13 charges.
John Ray III, a bankruptcy lawyer appointed to recover lost funds on behalf of FTX customers and investors, has repeatedly contended that the firm imploded as a result of mismanagement from senior executives. “These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown,” he wrote in a report about the company’s failure.