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Reuters Exclusive: Binance US$400 million mystery; financials not independent of Binance

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Reuters Exclusive: Binance US$400 million mystery; financials not independent of Binance

Reuters reporters Angus Berwick and Tom Wilson, who specialize in covering Binance-related news, have once again published a lengthy report. They emphasize that: 1. Unauthorized transfers by Binance.US have violated the regulations of the crypto bank Silvergate without executive authorization. 2. Unclear money flows with market maker Merit Peak indicate that Binance.US's trading orders are not transparent. 3. The complex relationships suggest that Binance.US is not operating independently from Binance.

Reuters: Unable to Confirm User Funds

Reuters claims to have obtained bank records showing that over $400 million was transferred from Binance.US accounts to the related trading firm Merit Peak Ltd in the first quarter of 2021. The involved institutions are as follows:

  • Merit Peak Ltd: Market maker for Binance.US, managed by Zhao Changpeng

  • Key Vision Development Limited: Engaged in financial transactions with Binance.US, with Zhao Changpeng as a director

Reuters points out that companies registered in the British Virgin Islands do not disclose the names of directors or shareholders but only show the registered agent.

The related cash flows started around the end of 2020:

  • From January to March 2021, Merit Peak received 89 transfers from Binance.US totaling $404 million.

  • During this period, Merit Peak made four payments to Binance.US totaling around $160,000.

  • Merit Peak receives nearly $1 million every two days, usually transferring funds after deposits from Prime Trust, Binance.US's custodian.

  • Merit Peak then transfers the funds from its Silvergate account to Key Vision.

Reuters is uncertain about the reasons for the transfers and whether the money belongs to Binance.US users. According to the user terms at the time, user dollars were held at Silvergate and Prime Trust LLC in Nevada.

Binance.US spokesperson Kimberly Soward told Reuters:

Reuters cited outdated information; Merit Peak does not provide trading or any services on the Binance.US platform, and only Binance.US employees can access its bank accounts.

Binance, CEO Zhao Changpeng CZ, Prime Trust have not responded. A Silvergate spokesperson also indicated they do not comment on individual users.

Former CEO Unaware of Fund Flow

Reuters stated that Binance.US's former CEO Catherine Coley had asked Binance CFO Susan Li to explain the fund flows at the end of 2020, claiming these cash flows were unexpected and never discussed.

Susan Li mentioned that Merit Peak is a market maker for Binance.US and also provides loans and funds to U.S. exchanges.

Informants mentioned that some funds went to Key Vision Development Limited registered in Seychelles. Reuters confirmed from company documents that Zhao Changpeng is one of the directors of Key Vision.

Reuters' Allegations

1. Violation of Silvergate Regulations in Fund Transfers

Transfers to Merit Peak were conducted through the Silvergate Exchange Network (SEN), which allows users to transfer dollars between bank accounts but requires administrator authorization.

A former Silvergate executive told Reuters that Silvergate has stated that authorization and approval through SEN require multiple steps, and transfers made without executive approval violate the bank's compliance regulations.

2. Lack of Transparency in User Orders

Informants mentioned that employees at Binance.US were unaware of Merit Peak's market-making rules, and user order matching is managed by Binance, with both parties signing licensing agreements regarding the related technology that are not publicly disclosed.

Howard Fischer, a former SEC senior lawyer and current partner at law firm Moses Singer, stated that Merit Peak's role presents a conflict of interest between Binance.US and users, which Binance.US did not disclose.

When there is a lack of transparency, you do not know if Binance users are at a disadvantage.

Last February, The Wall Street Journal cited informants saying that the SEC had subpoenaed former Binance.US CEO Catherine Coley seeking information on market makers, trading activities, etc.

3. Lack of Independence of Binance.US

Reuters believes that the above financial activities indicate that despite Binance's claims that Binance.US is completely independent, Binance.US's finances are controlled by Binance.

Reuters previously reported that Binance.US, headquartered in California as BAM Trading Services, registered as a money services business, is actually owned by Zhao Changpeng.

Binance.US CFO Jasmine Lee emphasized to The Wall Street Journal on 2/8 that the relationship between Binance and Binance.US is limited to names and technology sharing and not for fund transfers.

Binance.US's Explanation

Binance.US tweeted that there have been multiple attempts to equate it with bankrupt or fraudulent exchanges, but in fact, Binance.US is operated by many former employees of the U.S. Department of Justice, SEC, New York Fed, and FBI, committed to running a secure and compliant platform.

They emphasized:

  • Always maintaining a 1:1 reserve

  • Never trading or lending user funds

  • Only Binance.US employees can access bank accounts

  • Market maker Merit Peak ceased all activities on Binance.US in 2021

  • Binance.US's official website lists market maker plans, proving fair competition for market orders from all parties