Binance commingled customer funds and company revenue, says report; company denies claims
In 2017, Zhao founded Binance- which became the world's biggest crypto exchange within 6 months.
Just months after authorities in the United States sued Binance for "illegal” exchange and a “sham” compliance programme, more trouble seems to be brewing forthe world's largest cryptocurrency platform.
According to a Reuters report, Binance allegedlycommingled customer funds with company revenue in 2020 and 2021, in violation of US financial rules that require companies to keep them separate.
In simple terms, commingling means mixing customer and corporate funds. This is a grey area in financing and makes it difficult for outsiders to know whether a company is healthy or not. Under the US law, commingling is considered illegal for companies. A company found commingling can lose liability protection and creditors may be able to make a claim against its personal assets.
However, Binance has denied commingling allegations, calling the Reutersreport "weak". The company said that there was no commingling of funds, adding that it was "100 percent corporate funds".
Binance Communications Head Patrick Hillman dubbed the Reuters report as a "1000 words of conspiracy theories with zero evidence other than a 'former insider'" and accused the news agency of "making stuff up".
A Reuters report, quoting unnamed sources, alleged that the cryptocurrency platform commingled sums that ran into billions of dollars on an almost daily basis in accounts the exchange held at failed US lender Silvergate Bank.
The news agency reviewed a bank record showing that on February 10, 2021, Binance mixed $20 million from a corporate account with $15 million from an account that received customer money.
According to the report, Binance converted the commingled money into the dollar-linked token BUSD between 2020 and 2021.BUSD are “stablecoins” that are backed by dollars and designed to hold a steady value.
The money flows at Binance indicated a lack of internal controls to ensure customer funds were clearly identifiable and segregated from company revenues, three former U.S. regulators told Reuters.
Silvergate, the crypto-friendly bankon its way to closingdown, became the lead banker for the crypto exchange in 2019, when it allowed US customers to trade on its platform. Binance,which was initially outside of the global financial system, was compelled to open conventional bank accounts to deposit the dollars it received from clients and to finance investments.
The reports of commingling by Binance is a potential red flag for investors and highlights the regulatory grey area that exists in the crypto space.
In December 2022, the founder of bankrupt FTX crypto exchange, Sam Bankman-Fried, was also accused of commingling client funds. According to US authorities, he used commingled funds to finance venture capital investments, political donations and real estate purchases.