Binance Faces Allegations of Violating US Financial Rules by Commingling Customer Funds

Binance has been accused of commingling customer funds with the company’s revenue in 2020 and 2021, violating US financial rules that require customer funds to be kept separate.

Reuters reported the allegations, highlighting that the mingling of funds occurred almost daily in accounts held at the cryptocurrency-friendly Silvergate Bank, based in the United States. The amount of money involved is believed to be in the billions of dollars, according to an individual familiar with Binance’s financial operations.

A screenshot of instructions posted on Binance’s website in December 2020 telling users how to deposit dollars in Silvergate Bank.

Reuters did not verify the exact figures or frequency of the commingling. However, according to Reuters’ review of bank records dated February 10, 2021, Binance mixed $20 million of the company’s funds with $15 million from a customer deposit account.

Three former US regulators stated that the money flows at Binance, as described by Reuters, demonstrated a lack of internal controls to ensure that customer funds were clearly identified and segregated from the company’s revenue.

They explained that the commingling of these funds exposed customers’ assets to risk by obscuring their whereabouts, as stated by John Reed Stark, former Chief of the SEC’s Office of Internet Enforcement.

However, Reuters did not find any evidence to suggest that Binance had lost or misappropriated customer funds.

Changpeng Zhao, CEO of Binance

Binance’s spokesperson, Brad Jaffe, denied the allegations of commingling customer deposits with the company’s funds.

Binance has faced close legal scrutiny from regulatory authorities in the United States. In March, the US Commodity Futures Trading Commission (CFTC) sued Binance and its CEO, Changpeng Zhao, for violating commodity laws and operating an illegal derivatives exchange. The Department of Justice (DOJ) is also investigating Binance for various issues, including violations of sanctions orders involving Russia.

SEC Chairman Gary Gensler previously stated that many cryptocurrency exchanges were not complying with laws requiring brokerage firms to keep customer funds separate from the company’s assets.

The SEC has taken enforcement actions against numerous companies and cryptocurrency exchanges but has yet to take any action against Binance.

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