Explosive new revelations published by the Wall Street Journal claim that Binance and Binance US are more intertwined than previously thought.
The report is based on Telegram chats reviewed by WSJ between 2018-2020, in addition to additional interviews conducted by WSJ with unnamed Binance/US personnel.
Binance and Binance.US complexities
Binance and Binance.US, two cryptocurrency exchanges, were found to have a much deeper level of integration than they publicly disclosed, according to WSJ findings, with developers in China reportedly maintaining the software code that supports Binance.US users digital wallets, potentially giving Binance access to sensitive US customer data.
Binance’s attempt to neutralize US authorities by launching Binance.US was driven by fear of a crackdown on unregulated offshore crypto players, the WSJ report claims, leading to the decision to create Binance.US, a bare-bones US platform licensed by Binance. but appearing completely independent, the WSJ added.
Binance’s close involvement in Binance.US was demonstrated in September 2019 when a Binance employee in Shanghai turned on trading for the US platform minutes before it was launched, leading to an exchange in a Binance chat group on the Telegram messaging app:
Ninj0r [a Binance software developer]: Why did the trade start???? His time hasn’t come yet!!! Who started trading? Have we set the trade timers? Who started trading?
Other announcements followed, including another urgent one from Ninj0r: someone started TRADING EARLY. Who did that? At 8:56:09.822 someone manually started trading. WHO? Why?
Eventually, the company’s founder and CEO responded.
Changpeng Zhao: man here in Shanghai, operation error.
Binance has expressed interest in Gary Gensler as an advisor
The WSJ reports that Binance offered SEC Chairman Gary Gensler to serve as an adviser, but the offer was rejected. However, Gensler shared some “licensing strategies” with former Binance Labs head Ella Zhang and Binance employee Harry Zhou.
Harry Joe’s regulatory PR is pushing for a separate legal entity in the US
According to a presentation reviewed by the WSJ, in late 2018 Harry Zhou, who worked for a Binance-funded bitcoin trading company, suggested Binance executives set up a US-based business that would invite inquiries from US regulatory agencies and law enforcement authorities, thereby protecting Binance from their surveillance.
The presentation included a section on “Regulatory Engagement Plans,” suggesting that Binance would begin “a major PR effort demonstrating the US operation’s willingness to exceed SEC expectations and serve as an industry resource for the SEC.”
According to the WSJ, Zhou incorporated a Delaware company, BAM Trading Services Inc., in February 2019 to become the operator of Binance.US. Binance’s former CFO announced the creation of the firm, along with two others, called BAM Management US Holdings Inc. and BAM Technology Services Inc. in Telegram staff chat.
BAM trading and VPN
In June 2019, Binance announced the creation of Binance.US in partnership with BAM Trading, a firm that will license the Binance brand and technology. Binance.US is registered as a money services business with the US Department of the Treasury’s Financial Crimes Enforcement Network. However, according to documents reviewed by the WSJ, Binance did not disclose that its founder and CEO, Mr. Zhao, controls the BAM companies through a layer of legal entities registered in the Cayman Islands and British Virgin Islands.
Despite announcing that it will stop accepting US customers on its global platform, Binance officials have discussed how to retain them. In a Telegram chat in June 2019, an employee noted that over 18% of page views on Binance.com were from US users. Samuel Lim, Binance’s then head of compliance, suggested ways to keep its biggest customers in the US, including encouraging them to use VPNs to appear to be in another country. Lim also discussed whether US clients had offshore entities they could use to access Binance, according to documents reviewed by the WSJ.
Risks for Binance and its CEO Changpeng Zhao
If true, the Telegram leaks could hurt both CZ and Binance.
Suppose US regulators determine that Binance has control over a US company. In that case, they could claim the power to control Binance’s entire business, exposing the company’s finances to closer scrutiny and risking prosecution.
The Securities and Exchange Commission and the Department of Justice have been investigating Binance’s relationship with Binance.US since at least 2020.
WSJ added that the SEC is investigating specific links between Binance.US and two trading firms with close ties to Zhao, Merit Peak Ltd. and Sigma Chain AG.
On March 3, a bipartisan group of senators demanded that Binance answer a series of questions, alleging that the company “hid key financial information from its customers and the public.”
Response from Binance and Binance.US
Binance executives and employees declined to comment. The WSJ added that a Binance spokeswoman did not respond to requests to make Lim or Zhao available for comment, while Harry Zhou and Wei Zhou also did not respond to requests for comment.
Taking to Twitter on Sunday evening, CZ reminded his 8.2 million followers to ignore FUD, attacks and fake news.
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