Binance Reportedly Mixed Customer Funds with Company Revenue, Violating Regulations

In a shocking turn of events, it has been reported that cryptocurrency exchange Binance mixed customer funds with company revenue at a US bank throughout 2020 and 2021. According to a source with direct knowledge of the matter, commingling of funds occurred almost daily in Binance accounts at Silvergate Bank, involving staggering sums that reached billions of dollars.

Records reviewed by Reuters revealed a concerning incident in February 2021 when Binance mixed $20 million from a corporate account with $15 million from an account specifically designated for customer funds. While no evidence of theft or loss of client funds has been found, US financial regulations strictly mandate the separation of customer money from business revenue.

Binance, however, vehemently denies the accusations of commingling customer funds with its revenue. Binance spokesperson Brad Jaffe clarified that the accounts in question were not used to accept user deposits but rather to facilitate user purchases of cryptocurrencies. Jaffe asserted that there was never any commingling since the funds involved were entirely corporate. He further explained that when users sent money to the account, they were not depositing funds but rather purchasing BUSD, a stablecoin issued by Binance and Paxos, which is pegged to the US dollar.

Contradicting Binance’s claims, it has been discovered that the company’s website, during late 2020 and 2021, referred to customer dollar transfers as “deposits” that were credited to trading accounts in BUSD. Additionally, the site allegedly assured users that they could “withdraw” their deposits in USD. Former US regulators expressed concern to Reuters, suggesting that such language could create the expectation that client funds would be protected in the same manner as traditional cash deposits.

This recent revelation comes at a time when Binance is already under scrutiny by US authorities. In March, the Commodity Futures Trading Commission (CFTC) accused the exchange of operating illegally in the US and violating various financial laws. The CFTC’s complaint stated that Binance had engaged in the commingling of funds. The agency seeks permanent trading and registration bans against the defendants, including Binance CEO Changpeng Zhao. Zhao, in response, claimed that Binance blocks US users based on factors such as nationality, IP address, and mobile carrier, emphasizing that the platform does not cater to US customers.

Adding to Binance’s troubles, recent reports revealed that the Justice Department is investigating the company for potential violations of sanctions imposed on Russia. Furthermore, Binance announced its decision to exit the Canadian market due to stricter cryptocurrency regulations.

Interestingly, this incident of mixing customer and company funds bears resemblance to one of the crimes attributed to FTX founder Sam Bankman-Fried. Bankman-Fried has maintained his innocence, denying any knowledge of commingling funds, and pleading not guilty to fraud charges. Prosecutors have amassed an extensive amount of evidence, including millions of pages of emails and Slack messages, as part of the criminal case against him.

The collapse of FTX, triggered by a bank run initiated by Binance, further intensifies the gravity of the situation. Binance had initially planned to acquire FTX but backed out after reviewing the company’s financial records, leading to FTX’s downfall.

As the allegations against Binance continue to unfold, the cryptocurrency community and regulatory authorities remain on high alert. The consequences of mixing customer and company funds are not to be taken lightly, and the proper investigation and enforcement of regulations are imperative to maintain the integrity and trust within the industry.