SEC Alleges Binance and Binance.US Redirected $12B to Firms Controlled by CZ
- The regulator says that bank account documents show how the two exchanges redirected billions in customer funds to firms controlled by CZ between 2019 and 2021.
- The allegations come as evidence in a SEC request to a federal judge to allow a temporary restraining order on Binance.US assets.
Changpeng Zhao, Co-Founder & CEO of Binance, during day one of Web Summit 2022 at the Altice Arena in Lisbon, Portugal, 2 November, 2022. Ben McShane/Web Summit via Sportsfile
The U.S. Securities and Exchange Commission has accused CEO Changpeng “CZ” Zhao of receiving billions in Binance and Binance.US customer funds through his holding company, court documents filed on 7 June revealed.
According to the filings, the SEC alleges that more than $12 billion in Binance and Binance.US customer assets were redirected to firms controlled by CZ between 2019 and 2021 via an intermediary holding company Key Vision Development Limited. These accusations come as evidence in a request to a federal judge to allow a temporary freeze on Binance.US assets, beyond customer redemptions, and are supported by testimony given by the assistant chief accountant for the SEC’s Enforcement Division, Sachin Verma.
The sworn testimony of Verma come after he analysed documents from accounts at Silvergate and Signature Banks held by Binance, Binance.US, and CZ. The forensic analysis claims that around $12 billion in customer funds were funneled to Merit Peak — a firm that claims to hold Zhao’s “self-made wealth from the digital asset business” — while another $162 million were sent to a company controlled by Guangying Chen, a Binance back office and financial manager. The SEC noted that Merit Peak also traded on Binance.US, and said in the documents:
“However, the SEC has been unable to determine why a Zhao-controlled entity that was purportedly trading on the Binance.US Platform using Zhao’s personal funds would have acted as a ‘pass through’ account for billions of dollars of Binance Platforms customers’ funds.”
Wednesday’s SEC filings once again alleged that Binance had control over crypto assets from Binance.US as it was acting as its custodian, despite the fact it was assuring the public that there was separation between the two companies. The regulator noted that it has been investigating Binance.US since 2020, and that this information came partly from the exchange’s own auditor.
The SEC filed a lawsuit against Binance, Binance.US, and CEO Changpeng “CZ” Zhao on Monday alleging that the entities had violated securities law through several of its products. The regulator claimed that not only did the platforms offer unregistered securities, but also failed to register as a clearing agency, broker, and exchange, and that there was commingling of customer and corporate funds. Binance quickly responded by saying that “any allegations that user assets on the Binance.US platform have ever been at risk are simply wrong”.
- The popular crypto exchange has decided to sell its business in Russia to CommEX, a crypto exchange business that was officially launched on Tuesday.
- Binance noted that it will fully exit the Russian market, and have no ongoing revenue split or any option to buy back shares in the business.
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- The company said it will be suspending its crypto-backed debit card service in the Middle East on 25 August, and in Latin America by 21 September.
- Although no reason was given for the decision, the company noted that “less than 1% of users” in those regions will be affected by the change.
- A spokesperson said the change was due to the “changing market and user needs”, and that Binance will now be refocusing its resources on its main products and long-term goals.
- Launched in March 2022, Binance Connect helped crypto businesses connect with the traditional finance system, and supported 50 cryptocurrencies and networks such as Visa and Mastercard.