According to Reuters a reportBinance, the world’s largest cryptocurrency exchange, has been accused of combining customer funds with the company’s revenue in violation of US financial rules that require customer funds to be kept separate.
Three sources familiar with the matter told Reuters that mixing occurs almost daily in the stock exchange accounts at the American Silvergate Bank, with amounts amounting to billions of dollars. While Reuters could not independently verify the numbers or frequency, the news agency reviewed bank records showing that on February 10, 2021, Binance mixed $20 million from a corporate account with $15 million from an account that received customer funds.
Doubt the credibility of Binance?
The mixing of funds at Binance has raised concerns about a lack of internal controls to ensure customer funds can be identified and segregated from the company’s revenue. Three former US regulators have warned that the mixing of these funds put clients’ assets at risk by concealing their whereabouts.
John Reed Stark, former head of the SEC’s Office of Internet Enforcement, said that Binance clients “don’t need a forensic accountant to find their funds.”
It should be noted that Reuters did not find any evidence of Binance customer funds being lost or taken. However, mixing of funds continues to cause anxiety for clients who want to ensure the safety and security of their assets.
SEC Chairman Gary Gensler previously said that many cryptocurrency exchanges offering securities to US clients are not complying with laws that require registered brokers to protect client funds by separating them from company assets.
Despite publicly claiming to restrict access to Americans, Binance has also faced allegations that it allowed US clients to trade on its platform from 2019 to this year. In March, the US Commodity Futures Trading Commission (CFTC) filed a complaint against the exchange, alleging that it allowed US clients to trade derivatives without registering with the agency. Binance responded in a blog post that it is blocking US users.
Binance denies any wrongdoing
According to a statement Binance spokesperson Brad Jaffe made to Reuters, the accounts in question were not used to accept user deposits but to facilitate users to purchase on-demand dollar-pegged cryptocurrency token BUSD. However, the previous US regulators disputed the explanation, saying it was undermined by Binance’s previous assurances to customers that the transfers were deposits.
From late 2020 to 2021, Binance told customers that their dollar transfers were “deposits” that would be “restricted” to their BUSD trading accounts. Customers were told they could “withdraw” their dollar deposits. Previous regulators argue that these assurances created an expectation that customer funds would be protected like traditional cash deposits.
How Binance will respond to allegations of mixing between customer funds and the company is not yet clear. However, according to Reuters, the former US regulators argue that the exchange’s explanation is insufficient and that the representations given to clients created an expectation that their funds would be protected like traditional cash deposits.
Featured image from iStock, chart from TradingView.com
