Binance, the first cryptocurrency exchange in the world, had access to a bank account belonging to its American subsidiary Binance.US.
The information is from Reuters, which reports that Binance executives transferred hundreds of millions from this account to a trading platform, Merit Peak. The manager of Merit Peak was none other than Changpeng Zhao, the founder of Binance and great rival of Sam Bankman-Fried.
Binance.US executives at the time were unaware of these money movements and learned about them after they were made, according to Reuters which cites text messages between the CEO of Binance.US and a Binance executive.
Money transfers had started at the end of 2020. In the first three months of 2021, more than $400 million were transferred.
"The CEO of Binance.US at the time, Catherine Coley, wrote to a Binance finance executive in late 2020 asking for an explanation for the transfers, calling them 'unexpected' and saying 'no one mentioned them,'" Reuters said.
"Where are those funds coming from?" Coley asked.
The Binance executive, Susan Li, did not explain the transfers but said that Merit Peak was a "vendor that facilitated trading" on Binance.US and also provided loans and capital injections to the American exchange.
The bank account was held at California-based Silvergate Bank, known as the crypto bank in the space.
'Only Binance.US Employees Have Access'
Binance and Binance.US are presented as two independent entities. The second platform must respond to U.S. regulators, while the first is a global platform that escapes U.S. regulations. As two independent companies, they should not use or have access to each other's accounts. Reuters explains that it was unable to determine whether the funds transferred to Merit Peak were the funds of Binance.US customers.
Binance.US has dismissed this information, saying, in a tweet, that there is "only Binance.US employees have access to Binance.US bank accounts. Period."
"While there was a market making firm named Merit Peak that operated on the Binance.US platform, it stopped all activity on the platform in 2021," the firm continued. "Binance.US has never -and will never - trade nor lend out customer funds. Binance.US always maintains 1:1 reserves, and are subject to regular audits and regulatory reporting by government entities."
The platform ended by saying that there is no resemblance between it and FTX, which is accused of having transferred around $10 billion of its customers' funds to Alameda Research, a trading platform also created by its founder Bankman-Fried.
"There have been many attempts to draw parallels between Binance.US and fraudulent exchanges that have gone bankrupt. The real facts speak for themselves: there is no comparison," Binance.US said without mentioning FTX name.
A Binance.US spokesperson told TheStreet to refer to the tweet as the firm's response. Binance did not respond to a request for comment.
FTX and Alameda Research were supposed to be independent, but according to the Department of Justice and the Securities and Exchange Commission, they maintained an incestuous relationship. Bankman-Fried is accused of transferring $10 billion in client funds from FTX to Alameda.
CZ Ignores the Report
FTX was using the client cryptocurrencies as collateral to borrow money, which in turn it had transferred to Alameda Research. Alameda used this money to invest in crypto businesses and also for trading operations.
"Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.
Zhao, nicknamed 'CZ,' has yet to comment on the Reuters article but tweeted this on Feb. 17: "Remember 4. But focus on the first 3," tagging one of his tweets from the start of the year on the "Do's and Don'ts" for this year.
"4" refers to "ignore FUD [fear, uncertainty and doubt] fake news, attacks, etc." If we stick to this logic, the Reuters article is, according to him, part of the "4"
History will also remember that it was a tweet from CZ that sounded the alarm about the finances of Alameda Research and FTX, Bankman-Fried's empire, and was the beginning of the end of Binance's rival.
Before the Nov. 11 bankruptcy of FTX, Zhao and Bankman-Fried were considered the two most powerful bosses in the crypto space. They are referred to by their initials: SBF and CZ. Now that SBF's group has collapsed, many now consider CZ the new king of crypto.
