Binance commingled customer and corporate funds in 2020 and 2021 in accounts held at Silvergate Bank, according to a new report by Reuters.
The outlet alleges that Binance corporate funds were directed to an account where users were instructed to “deposit” funds in order to purchase BUSD. Binance insists these weren’t actually deposits, but were users purchasing BUSD.
Binance operated several accounts at Silvergate Bank. One that was under the name of Binance Holdings, a Binance entity organized out of the Cayman Islands, was primarily used to hold corporate funds. Another account for Key Vision Development, which was controlled by Binance chief Changpeng Zhao (CZ), was used to accept deposits from non-US customers.
The third account was for Merit Peak, another Cayman Islands-based firm that was also controlled by Zhao. This third account is the one where funds were reportedly commingled. These funds were reportedly used to purchase BUSD, the white-labeled Binance stablecoin operated by Paxos.
Merit Peak was the firm previously implicated in over $400 million of unexplained transfers from Binance US’s Silvergate account to Merit Peak, which were later passed on to Key Vision Development.
Binance has previously admitted that it commingled backing for Binance peg tokens, including BUSD, reportedly with customer funds in various wallets, referring to it at the time as “historical operations oversights” that were in the process of being corrected.
Patrick Hillman, Binance chief of comms, took to Twitter today to complain that the article was full of “conspiracy theories” and said Binance has “been very public about where the company had regulatory shortcomings in the past.”
Complicating discussion of Binance commingling is that Binance’s publicly stated standards for these issues may not be what people expect. In a blog post from Binance entitled Transparency on Wallets at Binance it claims that “Binance holds all of its clients’ crypto-assets in segregated accounts which are identified separately from any accounts used to hold crypto-assets belonging to Binance.”
However, it’s important to note that these accounts aren’t segregated into separate addresses or otherwise separated on the blockchain, instead the accounts are “internal accounting (or ledger) entries within the Binance system” and so any segregation of cryptocurrency assets was solely based on the quality of Binance internal accounting.
Previous lapses, including the failure to adequately back the BUSD B Peg token, raise legitimate questions about the quality of that reporting.
Binance also currently faces a lawsuit from the Commodities and Future Trading Commission (CFTC) that alleges Binance allowed US persons to trade on Binance and that Binance traded against its users, including using accounts controlled by the Merit Peak entity implicated in these transfers.