Binance’s US Partner Confirms Trading Platform’s Role in COO Zhao’s Company

The US partner of global cryptocurrency exchange Binance has confirmed that a trading firm run by Binance CEO Changpeng Zhao operates as a market maker on its platform.

Reuters reported on Thursday that Binance had secret access to a bank account belonging to its allegedly independent US partner and transferred large sums of money from the account to trading firm Merit Peak.

“While there was a market making company named Merit Peak that operated on the Binance.US platform, it ceased all activity on the platform in 2021,” Binance.US said in a statement. Tweeter Thursday after the publication of the Reuters article. He did not say when in 2021 the activity ceased, nor comment on Zhao’s role within the trading company.

Global exchange Binance is not licensed to operate in the United States, but transfers to Merit Peak revealed by Reuters suggest Binance controlled the finances of Binance.US, although it has publicly stated that the US entity is “totally independent” and functions as its “American partner.”

Binance transferred more than $400 million (nearly Rs 3,310 crore) from California-based Silvergate Bank’s account to Merit Peak between January and March 2021, Reuters reported on Thursday.

Prior to the publication of this story, Binance.US told Reuters that “Merit Peak does not market or provide any type of service on the Binance.US platform,” without giving further details.

Binance.US executives were concerned about outflows from the Silvergate account to Merit Peak because the transfers were happening without their knowledge, according to messages reviewed by Reuters.

A spokesperson for global exchange Binance, who did not respond to questions from Reuters for the article on Thursday, told crypto news outlet CoinDesk that the transfers were “a Binance.US issue.”

The activities of crypto platform market makers — firms that typically buy and sell assets on exchanges to deepen trading volumes — are coming under increasing scrutiny from US financial regulators. since the collapse of the major FTX exchange in November.

“Huge Burden”

Zhao did not directly address the report, but on Friday he tweeted“Remember 4,” marking a previous post in which he listed his “Do’s and Don’ts” for 2023. The fourth item on the list was “Ignore FUD, Fake News, Attacks,” using an acronym for “fear, uncertainty and doubt” often used in crypto in relation to news that is perceived as negative.

The day before the Reuters article, Binance Chief Strategy Officer Patrick Hillmann told The Wall Street Journal and Bloomberg that Binance expects to pay penalties to resolve US investigations into the company. Hillmann said Binance was built by software engineers who didn’t know the laws and rules on bribery and bribery, money laundering and economic sanctions, but the previous “loopholes” in its regulatory compliance had since been met.

“It’s a huge burden,” Hillmann told Bloomberg. “We just want to put it behind us.”

Hillmann did not respond to detailed questions Reuters sent him for the article published on Thursday.

Regulators are concerned that some market makers have received undisclosed special treatment from crypto exchanges, which could put customers at a disadvantage.

The U.S. Securities and Exchange Commission in December accused FTX founder Sam Bankman-Fried of granting “special privileges” to his trading firm Alameda Research, allowing him to siphon off billions of dollars in silver FTX customers. Bankman-Fried pleaded not guilty.

The 2022 bankruptcy of a series of major crypto firms has also prompted calls from politicians for clarity on how regulators assess ties between the US bank and the cryptocurrency industry.

In December, US Senators Elizabeth Warren and Tina Smith wrote to key financial regulators, including US Federal Reserve Chairman Jerome Powell, asking for their assessment of the risks to banks and the banking system from exposure to cryptography. The letter cited Silvergate Capital Corp among the banks that “relyed heavily on their crypto clients.”

Shares of Silvergate Capital Corp, the parent company of Silvergate Bank, fell sharply on the Reuters report, closing more than 22%. They have lost nearly 90% of their value since hitting an all-time high in November 2021.

© Thomson Reuters 2023