LONDON, Feb 17 (Portal) – US partner of global cryptocurrency exchange Binance has confirmed that a trading firm led by Binance CEO Changpeng Zhao is operating as a market maker on its platform.
Portal reported Thursday, citing bank documents and company news, that Binance secretly accessed a bank account at its allegedly independent US partner and transferred large sums of money from the account to trading firm Merit Peak Ltd.
“While there was a market-making firm called Merit Peak operating on the Binance.US platform, it ceased all activity on the platform in 2021,” Binance.US said in a tweet Thursday after the Portal story published had been. It did not elaborate on when activities would cease in 2021, or comment on Zhao’s role at the trading firm.
The Binance global exchange is not licensed to operate in the United States, but transmissions to Merit Peak revealed by Portal suggest Binance controlled Binance.US’ finances, despite publicly saying that the American entity was “totally Independent” and as its “US Partners.”
last update
Watch 2 more stories
Binance transferred over $400 million from California’s Silvergate Bank account to Merit Peak between January and March 2021, Portal reported on Thursday.
Prior to publishing this story, Binance.US had told Portal that “Merit Peak does not trade or provide any type of services on the Binance.US platform,” without giving any further details.
Binance.US executives were concerned about the outflows from the Silvergate account to Merit Peak as the transfers took place without their knowledge, according to company news verified by Portal.
A spokesman for the global Binance exchange, which did not respond to Portal’ questions about the story on Thursday, told crypto news outlet CoinDesk that the transfers were “a Binance.US issue.”
Zhao, the CEO of Binance, said on Friday that the global exchange has withdrawn potential investments in the United States, a move this year amid increasing US regulators’ scrutiny over crypto companies.
In particular, the activities of crypto platform market makers — firms that typically buy and sell assets on exchanges to increase trading volume — have drawn regulatory and policy focus since major exchange FTX collapsed in November.
Regulators are concerned that some crypto exchange market makers have received undisclosed special treatment that could disadvantage customers.
The U.S. Securities and Exchange Commission accused FTX founder Sam Bankman-Fried in December of granting his trading firm Alameda Research “special privileges” that allowed him to siphon billions of dollars in FTX client funds. Bankman-Fried has pleaded not guilty.
“There’s something fishy going on here that clearly doesn’t pass the smell test,” US Senator Roger Marshall told Portal. “Congress needs answers, and Binance.US and Silvergate are committed to providing them.”
“BIG LOAD”
Zhao didn’t address the report directly, but on Friday he tweeted “Remember 4.”, tagging a previous post listing his “do’s and don’ts” for 2023. Fake News, Attacks,” using an acronym for “Fear, Uncertainty, and Doubt,” which is commonly used in crypto in reference to news perceived as negative.
The day before Portal’ article, Patrick Hillmann, Binance’s chief strategy officer, told the Wall Street Journal and Bloomberg that Binance expects to pay fines to settle US investigations into the company. Hillmann said Binance was built by software engineers unfamiliar with laws and rules on bribery and corruption, money laundering and economic sanctions, but previous “loopholes” in regulatory compliance have now been filled.
“It’s a huge burden,” Hillmann told Bloomberg. “We just want to get it over with.”
Hillmann did not answer detailed questions that Portal had asked him about the article published on Thursday.
The bankruptcy of a number of major crypto firms in 2022 has also sparked calls from politicians for more clarity on how regulators assess the relationship between US banking and the cryptocurrency sector.
In December, US Senators Elizabeth Warren and Tina Smith wrote to top financial regulators, including Federal Reserve Chair Jerome Powell, asking for their assessment of the risks to banks and the banking system from exposure to crypto. The letter cites Silvergate Capital Corp as one of the banks that “rely heavily on their crypto customers.”
Shares of Silvergate Capital Corp (SI.N), parent company of Silvergate Bank, closed up 4.1% on Friday. They fell sharply, losing more than 22%, according to Portal report on Thursday. They have lost around 90% of their value since hitting an all-time high in November 2021.
Reporting by Tom Wilson and Angus Berwick in London Editing by Susan Fenton and Matthew Lewis
Our standards: The Trust Principles.