Binance reportedly mixed customer funds with company revenue at a US bank
The cryptocurrency exchange has denied commingling funds, which would violate US financial rules.
Cryptocurrency exchange Binance reportedly mixed its revenue with customer funds at a US bank in 2020 and 2021. A source said to have direct knowledge of company finances told Reuters that commingling happened almost daily in Binance accounts at Silvergate Bank and concerned sums that ran into the billions.
The news agency said it reviewed records showing that, in February 2021, Binance mixed $20 million from a corporate account with $15 million from one into which customer funds were placed. Reuters noted that it found no evidence of client funds being stolen or lost. Still, under US financial regulations, customer money must be kept separate from business revenue.
Binance has denied commingling customer funds and its revenue. “These accounts were not used to accept user deposits; they were used to facilitate user purchases” of cryptocurrencies, Binance spokesperson Brad Jaffe told Reuters. “There was no commingling at any time because these are 100 percent corporate funds.” Jaffe added that users weren't depositing funds when they sent money to the account, but instead were purchasing BUSD, a stablecoin issued by Binance and Paxos that's pegged to the US dollar.
However, in late 2020 and during 2021, Binance's website is said to have stated that customer dollar transfers were "deposits" that were credited to trading accounts in BUSD. The site also reportedly informed users that they'd be able to "withdraw" deposits in USD. Former US regulators suggested to Reuters that the language "created the expectation that clients’ funds would be safeguarded in the same way as traditional cash deposits."
Binance is already in hot water with US authorities. In March, the Commodity Futures Trading Commission accused the company of operating in the US illegally and said it had broken several financial laws. In its complaint (PDF), the CFTC said Binance had "commingled funds." The agency is seeking permanent trading and registration bans against the defendants, who include Binance CEO Changpeng Zhao. In a blog post, Zhao claimed that Binance blocks US users on several bases, including nationality, IP address (including common VPN access points) and mobile carrier.
Earlier this month, reports suggested the Justice Department was investigating the company over potential violations of sanctions imposed on Russia. Binance also recently said it would exit Canada due to tighter cryptocurrency regulations.
If the prospect of a cryptocurrency exchange mixing customer and company funds sounds familiar, that's because it's one of the many crimes US authorities have accused FTX founder Sam Bankman-Fried of. Bankman-Fried has claimed he didn't knowingly commingle funds and has pleaded not guilty to fraud charges. On Tuesday, it emerged that federal prosecutors have accumulated over 6 million pages of evidence (including emails and Slack messages) as part of their criminal case against Bankman-Fried.
FTX’s collapse late last year was triggered by a bank run on the company that Binance initiated. Binance planned to snap up FTX but pulled out of the deal after taking a look at the latter’s books.