Binance, the world’s largest cryptocurrency exchange by trading volume, has been under scrutiny from regulators around the world for allegedly offering unlicensed securities and derivatives trading. The US Securities and Exchange Commission (SEC) is reportedly investigating whether Binance violated US laws by allowing Americans to trade on its platform without registering as a broker-dealer.
Binance CEO Changpeng Zhao has denied that the US arm of the crypto exchange used a Cayman Islands-based entity that was recently accused by the SEC of illegally offering securities. In a blog post published recently, Zhao said that Binance.US, which is operated by BAM Trading Services, has never used Binance Holdings Limited, the entity that received a Wells notice from the SEC last week.
A Wells notice is a formal notification from the SEC that it intends to bring an enforcement action against a company or individual for violating securities laws. Zhao said that Binance Holdings Limited is a separate entity from Binance.US and has no direct or indirect ownership or control over BAM Trading Services. He also said that Binance Holdings Limited has never provided any services or products to Binance.US or its customers.
Binance’s founder and CEO, Changpeng Zhao (CZ), has repeatedly denied any wrongdoing and claimed that Binance operates in compliance with local laws and regulations wherever it does business. He has also said that Binance does not have a headquarters or a single legal entity, but rather a decentralized network of affiliates and partners.
However, some experts and analysts have questioned CZ’s claims and suggested that he is trying to evade regulatory oversight and accountability by playing smart with his words and actions. They point out that Binance has a clear corporate structure, with entities registered in various jurisdictions such as the Cayman Islands, Singapore, Malta, and the UK. They also argue that Binance’s decentralized model does not exempt it from complying with the rules of the markets where it operates or serves customers.
For instance, Binance recently announced that it would stop offering derivatives trading to users in Hong Kong, following a similar move in Germany, Italy, and the Netherlands. However, some observers noted that Binance did not actually ban Hong Kong users from accessing its derivatives platform, but rather asked them to close their positions within 90 days. This means that Binance could still earn fees from existing derivatives contracts until they expire or are closed.
Another example is Binance’s decision to launch a new platform called Binance.US, which is operated by a separate entity called BAM Trading Services Inc., based in San Francisco. Binance.US claims to be fully compliant with US laws and regulations and has registered as a money services business with the Financial Crimes Enforcement Network (FinCEN). However, some reports have suggested that Binance.US is not independent from Binance, but rather a subsidiary or an affiliate of the parent company. They cite evidence such as the use of the same brand name, logo, website design, and customer support channels.
Furthermore, some critics have accused CZ of being dishonest or misleading about his involvement with Binance.US. They point out that CZ has publicly stated that he has no direct role or influence over Binance.US but has also admitted that he provides “advice” and “guidance” to its CEO, Brian Brooks, who is a former acting head of the Office of the Comptroller of the Currency (OCC). They also note that CZ has access to the data and analytics of Binance.US, which could give him an unfair advantage over other competitors in the US market.
Zhao claimed that the SEC’s allegations are based on a misunderstanding of the relationship between Binance and Binance.US, and that the exchange is willing to cooperate with the regulator to resolve the issue. He added that Binance.US is fully compliant with all US laws and regulations, and that it has robust anti-money laundering and compliance programs in place.
CZ Binance seems to be trying to play smart on sec allegations by adopting a decentralized and ambiguous approach to its business operations and governance. However, this strategy may not be enough to avoid regulatory scrutiny and enforcement actions from authorities around the world who are concerned about the potential risks and harms of unregulated crypto activities. CZ may need to rethink his stance and cooperate more transparently and proactively with regulators if he wants to preserve his reputation and credibility as a leader in the crypto industry.
Zhao said that Binance.US is committed to providing a safe and secure platform for its users, and that it will continue to offer innovative products and services to the US market.
SBF’s parents say FTX’s claims are Completely False
In a recent development in the ongoing lawsuit between FTX and the family of Samuel Bankman-Fried (SBF), the legal representatives of SBF’s parents have issued a statement denying FTX’s allegations that they were involved in a scheme to defraud the crypto exchange.
FTX had accused SBF’s parents of conspiring with their son to transfer millions of dollars’ worth of FTX tokens to offshore accounts, in violation of the terms and conditions of the exchange. FTX had also claimed that SBF’s parents had used their influence and connections to pressure regulators and media outlets to launch investigations and negative campaigns against FTX, in an attempt to damage its reputation and market share.
The statement from SBF’s parents’ lawyers reads as follows:
“We are appalled by the baseless and malicious accusations that FTX has made against our clients, who are respectable and law-abiding citizens with no involvement whatsoever in the crypto industry. FTX’s claims are completely false and fabricated and are part of a desperate and unethical strategy to divert attention from its own wrongdoing and legal troubles’’.
“This is a dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child’s trial begins. These claims are completely false,” Sean Hecker, counsel to Joe Bankman, and Michael Tremonte, counsel for Barbara Fried.
Our clients have never conspired with their son or anyone else to defraud FTX or any other entity, nor have they ever used their influence or connections to interfere with FTX’s operations or regulatory compliance. These allegations are nothing but slander and defamation, and we will vigorously defend our clients’ rights and reputation in court. We demand that FTX retract its false statements and apologize to our clients immediately or face the full consequences of its actions.”
The lawsuit between FTX and the family of Samuel Bankman-Fried (SBF) is a legal dispute over the ownership and control of FTX tokens, which are the native currency of the crypto exchange. FTX claims that SBF, who is the founder and CEO of FTX, had breached his fiduciary duty and contract with the exchange by secretly transferring millions of dollars’ worth of FTX tokens to his parents and other associates, who then moved them to offshore accounts.
The filing claims Bankman lobbied his son to increase his salary from $200,000 a year to $1 million a year, invoking his mother to push this forward. The couple received a $16.4 million property in the Bahamas, paid using funds from FTX, the filing adds — as well as donations to Stanford, an appearance in a Super Bowl commercial and a Persian rug that cost more than $2,500.
FTX alleges that this was done to avoid taxes, regulations, and accountability, and to gain an unfair advantage over other FTX token holders. FTX is seeking to recover the tokens and damages from SBF and his family.
