Crypto giant Binance controlled ‘independent’ U.S. affiliate’s bank accounts

A senior Binance executive was the main operator for five bank accounts belonging to Binance.US

June 06, 2023 11:18 am | Updated 11:18 am IST - LONDON

File photo of the Binance app logo

File photo of the Binance app logo | Photo Credit: REUTERS

A senior Binance executive was the main operator for five bank accounts belonging to the giant cryptocurrency exchange’s purportedly independent U.S. affiliate, including an account that held American customers’ funds, bank records show.

U.S. lender Silvergate Bank authorised the executive, Guangying Chen, a close associate of Binance CEO Changpeng Zhao, to operate the accounts in 2019 and 2020, according to records from those years. This allowed Chen and her deputies to move funds held in the bank accounts. Employees at the affiliate, Binance.US, had to ask Chen’s team to process payments, even to cover the firm’s payroll, company messages show.

The new findings offer further detail into how Binance exercised tight control over Binance.US, despite both firms maintaining that they have always operated independently. The previously unreported bank records and messages show that Binance’s management over the U.S. business’s finances extended across its bank accounts at Silvergate and detail how this secret access was granted.

After this story was published, the U.S. Securities and Exchange Commission filed a civil complaint against Binance after a years-long inquiry into the company. The agency accused Zhao of secretly controlling Binance.US as part of a "web of deception" to evade U.S. laws and said that until at least December 2020, Binance.US staff "did not have any ability to control" the company's bank accounts.

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Binance.US has denied that Binance ever operated its bank accounts. Its head of legal, Krishna Juvvadi, told Reuters in April that employees of Binance.US’s operator, BAM Trading, had “exclusive control” since its founding in 2019.

In response to questions for this article, however, a Binance.US spokesperson, Christian Hertenstein, said that since the company’s current chief executive, Brian Shroder, took over in late 2021, “no one other than Binance.US officials have had control or access to Binance.US accounts.” Hertenstein did not explain the discrepancy in the time periods given by him and Juvvadi.

Binance and Silvergate, which collapsed in March and is winding down operations, did not respond to requests for comment for this article. Binance said on Monday it would "defend our platform vigorously" from the SEC's allegations.

Binance’s U.S. operations are facing ever-closer attention in Washington. By secretly retaining control over Binance.US’s finances, Zhao ensured he could direct the company’s expansion in the American crypto market – one of the world’s biggest – while keeping it apart from his global exchange that was under scrutiny from U.S. regulators.

The U.S. Commodity Futures Trading Commission in March charged Binance and Zhao with willful evasion of commodities laws by “intentionally structuring entities” to avoid U.S. regulations designed to protect investors. Zhao called the civil charges an “incomplete recitation of facts.” The CFTC had no comment for this article.

Reuters has previously reported that a deputy of Chen’s had access to one Binance.US Silvergate account and that the account transferred more than $400 million in 2021 to a trading firm controlled by Zhao. Binance.US has said the trading firm, Merit Peak, was withdrawing its own funds, money that derived from its trading activity on the exchange. Juvvadi said an investigation Binance.US conducted into Reuters’ previous findings found they were “simply not true.”

Reuters also reported on May 23 that Binance commingled its customers’ funds with its corporate revenues in Merit Peak’s Silvergate account, in breach of U.S. financial rules that require client money to be kept separate. Binance denied mixing customer deposits and company funds, saying that users who sent money to the account were not making deposits but rather buying Binance’s bespoke dollar-linked crypto token.

The SEC, in its complaint on Monday against Zhao and Binance, also accused them of commingling billions of dollars in customer funds in Merit Peak's account.

‘Primary Admin User’

The Binance.US trading platform was launched by its operating firm, BAM Trading, in mid-2019 under then Chief Executive Catherine Coley. Zhao owned BAM Trading through layers of offshore companies, company documents show. But Binance.US said it operated solely as a “US partner” of Binance. Reuters reported last year that, in fact, Zhao created Binance.US as a de facto subsidiary to draw U.S. regulators’ scrutiny away from the global exchange.

In December 2019, a Binance.US employee told Coley that Silvergate wanted her to sign a banking resolution, a document that defines a firm’s banking relationship, to “make sure it is ok” for Chen to manage Binance.US’s bank accounts, according to messages exchanged between Binance.US employees. The resolution document, reviewed by Reuters and authored by a Silvergate relationship manager, requested that Coley authorize Chen to “open accounts, transact, and otherwise operate” accounts on behalf of BAM Trading. A person familiar with the document said Coley signed it.

Coley left Binance.US in 2021. A lawyer representing her, James McDonald, didn’t respond to requests for comment.

Chen then signed further agreements with Silvergate to act as the “Primary Admin User” for the five bank accounts: a customer deposit account; an account for corporate clients that later sent funds to Merit Peak; and three other accounts, according to bank records dated between December 2019 and January 2020. The agreements said the authorised person could withdraw funds from the accounts or deposit them, and designate others to do so, too.

Coley told colleagues in a message later that year that she and her finance team were not administrators for BAM’s accounts and only had view-access. The arrangement left Binance.US’s chief lacking ultimate control over the company’s own finances. “We cannot change anything” in the Silvergate banking portal, she wrote.

Hertenstein, the Binance.US spokesperson, told Reuters that “since at least 2021, the only ‘Primary Admins’ on active Binance.US accounts have been Binance.US officials.” He said some of the accounts identified by Reuters as being operated by Chen were “institutional client accounts,” without elaborating on their activity.

After Chen gained authorisation, her deputy, a Binance executive named Susan Li, took charge of managing the accounts’ transactions, including payments to cover Binance.US’s payroll, company messages show. “Approved from my end,” Li messaged a Binance.US employee after receiving one payroll request.

Chen, known as Heina, retained control over the accounts until at least early 2021, the messages show. The Silvergate documents she signed listed her address as in Shanghai. A Binance.US employee messaged colleagues in May 2020 to say Silvergate “was still waiting for Heina to sign the final paperwork” on a new bank account for the Binance.US exchange’s institutional customers.

Reuters could not determine if Chen or Li moved funds from the Binance.US customer deposit account. Neither Chen nor Li responded to questions from Reuters.

“Customer funds have not been misused or co-mingled,” said Hertenstein at Binance.US.

Coley and her team repeatedly asked Li during 2020 for Binance to grant them control over Binance.US’s own bank accounts, at one point expressing concern about how regulators would view the situation, company messages show. “I think it makes sense BAM has its own login for the regulatory perspective,” a Binance.US finance director wrote to Li in November.

Coley also later expressed worries to Li that the transfers to Merit Peak were taking place without her knowledge, according to messages Reuters previously reported.

Binance.US did not answer questions about Chen's role, including her control of the accounts or when it may have ended. It is “difficult to speak to each and every detail” because the company’s “management team has turned over completely since the time period in question,” Hertenstein said.

Juvvadi, Binance.US’s head of legal, said the fund flows to Merit Peak were all proper. The internal investigation matched all the transfers to Merit Peak with withdrawals the trading firm made from its own digital asset account on the Binance.US platform, he said. “All the funds belonged to Merit Peak,” he said.

Juvvadi declined to elaborate on Merit Peak’s trading activity or Zhao’s role at the firm.

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