Binance Faces Accusations that It Mixed Customer and Company Funds

Binance – the largest and most popular digital currency exchange – is in hot water again after former insiders alleged that the exchange combined funds from customers with those of the company.

What Did Binance Do?

In what could be argued as taking a page out of the FTX playbook, Binance is accused of not keeping customer and company funds separate. This would be a breach of U.S. financial rules. Binance has denied any wrongdoing.

One of the insiders claims that the total of the commingled money is in the billions, and that this occurred almost daily through accounts the company had with the now defunct Silvergate Bank. As it stands, various news platforms such as Reuters have conducted analyses of Binance’s financial transactions, yet they cannot find (at least for now) evidence suggesting that what the insiders say is true.

Nevertheless, the claims arouse suspicion and concern in digital currency traders given this is exactly what FTX is accused of having done, and for some time, Binance and FTX were working together. One needs to wonder if perhaps the latter’s bad business protocols didn’t rub off on the former.

In a statement, SEC commissioner Gary Gensler says many crypto exchanges are guilty of offering securities after they failed to register as broker-dealers, thus ensuring that their clients’ money would be protected and separated from all corporate assets and profit funds. He said:

Their business models tend to be built on taking customer funds, commingling it.

Binance spokesperson Brad Jaffe came out to say that Binance has not committed any crimes, nor is it guilty of what it’s being accused of. He said:

These accounts were not used to accept user deposits. They were used to facilitate user purchases. There was no commingling at any time because these are 100 percent corporate funds.

Indeed, the situation is very reminiscent of FTX, a crypto exchange that fell into a heaping pile of bankruptcy and fraud last November. Following the announcement of its bankruptcy, the company’s head honcho Sam Bankman-Fried was arrested in the Bahamas after he was accused of commingling his firm’s money with that of customers. He was also charged with using customer funds to pay off loans with his other firm Alameda Research and to invest in luxury Bahamian real estate.

At the present time, Binance is also facing scrutiny from the Commodity Futures Trading Commission (CFTC), which is suing the exchange for allegedly violating the Commodity Exchange Act.

Further Legal Issues

CFTC chair Rostin Behnam said:

For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law.