5-6-2023 (LONDON) According to bank records, a high-ranking Binance executive was the primary operator for five bank accounts linked to the cryptocurrency exchange’s supposedly independent U.S. affiliate, including an account that held funds belonging to American customers.
In 2019 and 2020, Silvergate Bank authorized Guangying Chen, a close associate of Binance CEO Changpeng Zhao, to manage these accounts. This granted Chen and her team the ability to transfer funds held in the bank accounts. Messages exchanged among company employees at the affiliate, Binance.US, indicate that they had to seek assistance from Chen’s team even for routine financial transactions, including payroll-related matters.
These newly discovered details shed light on the extent of Binance’s control over Binance.US, contradicting both companies’ claims that they have always operated independently. The undisclosed bank records and messages demonstrate Binance’s management of the U.S. affiliate’s finances, particularly regarding its accounts at Silvergate, and reveal how this secret access was granted.
Binance.US has previously denied allegations that Binance had control over its bank accounts. In April, Krishna Juvvadi, Binance.US’s head of legal, stated that employees of Binance.US’s operator, BAM Trading, had “exclusive control” since its establishment in 2019.
However, when questioned for this article, a Binance.US spokesperson named Christian Hertenstein stated that since late 2021, “no one other than Binance.US officials have had control or access to Binance.US accounts” since the current CEO, Brian Shroder, took over. Hertenstein did not clarify the discrepancy in the timeframes provided by him and Juvvadi.
Binance and Silvergate, which recently faced collapse and is now in the process of winding down operations, did not respond to requests for comment.
The scrutiny surrounding Binance’s U.S. operations is intensifying in Washington. By secretly maintaining control over Binance.US’s finances, Zhao ensured that he could steer the company’s expansion in the lucrative American crypto market while keeping it separate from his global exchange, which has come under scrutiny from U.S. regulators.
In March, the U.S. Commodity Futures Trading Commission (CFTC) charged Binance and Zhao with willful evasion of commodities laws by deliberately structuring entities to circumvent U.S. regulations designed to safeguard investors. Zhao referred to the civil charges as an “incomplete recitation of facts.” The CFTC declined to comment on this article.
Reuters previously reported that one of Chen’s subordinates had access to a Binance.US Silvergate account, which transferred over $400 million in 2021 to a trading firm controlled by Zhao, called Merit Peak. Binance.US claimed that Merit Peak was withdrawing its own funds, which originated from trading activities on the exchange. Juvvadi stated that an investigation conducted by Binance.US into Reuters’ previous findings found them to be “simply not true.”
On May 23, Reuters also reported that Binance commingled customer funds with its corporate revenues in Merit Peak’s Silvergate account, a violation of U.S. financial regulations that require client funds to be kept separate. Binance denied mixing customer deposits with company funds, asserting that users who sent money to the account were not making deposits but rather purchasing Binance’s custom dollar-linked cryptocurrency token.
According to messages exchanged among Binance.US employees, the Binance.US trading platform was launched by its operating firm, BAM Trading, in mid-2019 under the leadership of CEO Catherine Coley. Company documents reveal that Zhao owned BAM Trading through a network of offshore companies. However, Binance.US stated that it functioned solely as a “US partner” of Binance. Reuters reported last year that Zhao actually created Binance.US as a de facto subsidiary to divert regulatory attention away from the global exchange.
In December 2019, a Binance.US employee informed Coley that Silvergate requested her to sign a banking resolution document to authorize Chen to manage Binance.US’s bank accounts. The resolution, reviewed by Reuters and prepared by a Silvergate relationship manager, requested Coley’s approval for Chen to “open accounts, transact, and otherwise operate” on behalf of BAM Trading. A source familiar with the document confirmed that Coley signed it.
Coley informed colleagues in a later message that she and her finance team were not administrators for BAM’s accounts and only had view-access. This arrangement left the chief of Binance.US without ultimate control over the company’s finances. “We cannot change anything” in the Silvergate banking portal, she wrote.
Regarding Chen’s role, including her control of the accounts and when it may have ended, Binance.US did not respond to inquiries. Hertenstein, the Binance.US spokesperson, stated that it is “difficult to speak to each and every detail” since the management team has completely turned over since the time period in question.
Juvvadi, Binance.US’s head of legal, asserted that all the fund flows to Merit Peak were legitimate. He claimed that an internal investigation matched all the transfers to Merit Peak with withdrawals made by the trading firm from its own digital asset account on the Binance.US platform. “All the funds belonged to Merit Peak,” he stated.
Juvvadi declined to provide further details regarding Merit Peak’s trading activities or Zhao’s role within the firm.
