Former top SEC official John Reed Stark is sounding the alarm, advising customers to “get out” of the exchange “right now”. Stark, who spent 18 years as a lawyer at the US Securities and Exchange Commission (SEC) and shaped policies around emerging technologies, referenced Binance in his latest tweet, stating that the exchange’s future is in danger due to various red flags he has spotted.
Binance’s future is in jeopardy, at least that’s my opinion. Having worked as a lawyer in the SEC Enforcement Division for 18 years, I was trained to spot red flags. When I read about Binance, I see a lot of red flags.
Lack of Reliable, Trustworthy Information
Just consider… pic.twitter.com/hXFahhwZuo
— John Reed Stark (@JohnReedStark) May 2, 2023
Binance has been the target of several allegations and regulatory actions in recent months. One such action is a case filed by the Commodity Futures Trading Commission (CFTC) that accuses Binance of violating derivatives trading rules. In addition, Binance has been accused of commingling customer funds and not providing audited financials and proof of reserves. The exchange’s so-called auditor quit and disavowed the validity of its representations.
Stark cites the lack of reliable, trustworthy information about Binance as a major red flag. He notes that the exchange has never provided true proof of reserves and audited financials, and that its stablecoins may not hold their peg. There is also a lack of access to reliable, credible, and timely disclosures, including basic financial information such as revenue, profit, cash reserves, the role its coin plays on its balance sheet, its crypto-margin bets, and its risk exposure. Furthermore, there could be a bank run on Binance at any moment, and the US Department of Justice may opt to charge the exchange with criminal misconduct.
Stark also highlights the inadequacy of proof-of-reserves audits, which Binance previously touted as evidence of its financial stability and wherewithal. He notes that such audits are far from dependable, and that the PCAOB, the US organization that oversees auditing standards, does not recommend relying on them. Proof-of-reserves audits are limited in scope and may not address the crypto entity’s liabilities or provide any assurance about the effectiveness of its internal controls or governance.
In summary, Stark’s warnings about Binance come amid a host of regulatory and legal issues that have plagued the exchange in recent months. Customers and investors are advised to proceed with caution and do their due diligence before engaging with the platform.
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