Reuters reporters Angus Berwick and Tom Wilson, who specialize in handling Binance blackmail, once again published a long report. It emphasized that 1. Binance.US’s transfer without executive authorization violated the regulations of the crypto bank Silvergate. 2. The unknown cash flow with market maker Merit Peak shows that Binance US’s trading orders are not transparent. 3. The intricate relationship shows that Binance.US is not independent from Binance.
Reuters: Unable to confirm whether it is user funds
Reuters claims to have obtained bank records showing that more than $400 million was transferred from Binance.US accounts to related trading firm Merit Peak Ltd in the first quarter of 2021. The relevant organizations are as follows:
Merit Peak Ltd: Binance US market maker, managed by Changpeng Zhao
Key Vision Development Limited: has financial ties with Binance America, and Changpeng Zhao is a director
Reuters pointed out that companies registered in the British Virgin Islands will not reveal the names of directors and shareholders, only the registered agent.
Relevant cash flows will begin approximately at the end of 2020:
From January to March 2021, Merit Peak received 89 transfers from Binance.US totaling $404 million.
Merit Peak made four payments to Binance.US during this period, totaling approximately $160,000.
Merit Peak receives $1 million almost every two days, usually after deposits from Prime Trust, Binance’s US custodian.
Merit Peak will again transfer funds from the Silvergate account to Key Vision.
Reuters was unsure of the reason for the transfer or whether the money belonged to Binance.US users whose dollars were held at Silvergate and Nevada-based custodian Prime Trust LLC, according to user terms at the time.
Binance.US spokesperson Kimberly Soward told Reuters:
Citing outdated information from Reuters, Merit Peak does not offer trading or any type of services on the Binance.US platform, and only Binance.US employees have access to its bank accounts.
Binance, CEO Changpeng Zhao (CZ), and Prime Trust did not respond. A spokesperson for Silvergate also stated that it does not comment on individual users.
The former CEO also didn’t know where the funds were flowing.
Reuters reported that Catherine Coley, then CEO of Binance.US, asked Binance’s financial director Susan Li to explain the whereabouts of the funds at the end of 2020. The former said that these cash flows were unexpected and had never been mentioned.
Susan Li pointed out that Merit Peak is the market maker of Binance US and will also provide loans and funds to US exchanges.
People familiar with the matter said that some of the funds also flowed to Key Vision Development Limited, a company registered in Seychelles. Reuters cited company documents confirming that Zhao Changpeng is one of the directors of Key Vision.
Reuters' allegations
1. Fund transfer violates Silvergate regulations
Transfers to Merit Peak are made through the encrypted banking network Silvergate Exchange Network (SEN), which allows users to transfer U.S. dollars between bank accounts, but only with administrator authorization.
A former Silvergate executive told Reuters that Silvergate had mentioned that SEN authorization and approval required multiple steps, and that transfers without executive approval violated the bank's compliance regulations.
2. User orders are not transparent
Insiders said that Binance employees in the United States were not clear about Merit Peak’s market-making operating rules. User matching orders were managed by Binance. The two parties signed a license agreement for related technologies, which was not made public.
Howard Fischer, a former SEC senior attorney and current partner at the firm Moses Singer, said Merit Peak’s role created a conflict of interest between Binance US and users, and Binance US did not disclose relevant information.
When there is a lack of transparency, you don’t know if Binance users are at a disadvantage.
In February last year, the Wall Street Journal quoted people familiar with the matter as saying that the SEC had issued a subpoena to former Binance.US CEO Catherine Coley, requesting information on market makers, trading activities and other information.
3. Binance.US is not independent
Reuters believes that the above-mentioned financial activities indicate that although Binance claims that Binance.US is completely independent, in fact Binance.US’s finances are controlled by Binance.
Reuters previously reported that Binance.US is headquartered in California-based BAM Trading Services, registered as a currency services company, and its actual owner is Changpeng Zhao.
Binance.US Chief Financial Officer Jasmine Lee emphasized to the Wall Street Journal on February 8 that the relationship between Binance and Binance.US is limited to name and technology sharing and will not be used to transfer funds.
Binance.US explanation
Binance.US tweeted that various circles have repeatedly tried to equate it with bankrupt and fraudulent exchanges, but in fact Binance US is composed of many former employees of the U.S. Department of Justice, Securities Regulatory Commission, New York Fed, and FBI, and is committed to To operate a safe and compliant platform.
It emphasizes:
Always maintain a 1:1 reserve
Will never trade or lend user funds
Only Binance US employees have access to bank accounts
Market maker Merit Peak has ceased all activity on Binance US in 2021
The official website of Binance US has listed the market maker plan, proving that Binance fairly allows all parties to compete for market making orders.
There have been many attempts to draw parallels between https://t.co/AZwoBOgsqS and fraudulent exchanges that have gone bankrupt. The real facts speak for themselves: there is no comparison.
Our leadership team is staffed with former DOJ, SEC, FBI, and NYFed employees who are… https://t.co/5etl0z3ZUX
— Binance.US (@BinanceUS) February 16, 2023
This article Reuters long article: The whereabouts of Binance’s US$400 million is unknown, and its finances are not independent of Binance. It first appeared on Chain News ABMedia.