After Forbes and Reuters, it’s the Wall Street Journal’s turn to draw a parallel between FTX and Binance. The specter of SBF remains alive…
When Binance imitates FTX
FTX and Binance have in common having a US entity that is supposed to be independent.
Everyone remembers in particular how Sam Bankman-Fried repeatedly affirmed that FTX.US was out of danger, come what may.
Ultimately, FTX, FTX.US, investment fund Alameda Research and 130 other affiliates were declared bankrupt simultaneously.
As a reminder, the DRY accuses SBF of “lent” FTX clients’ money to his personal investment fund Alameda Research. Result, 8.9 billions of dollars are missing…
In other words, although regulated in the United States and theoretically isolated from FTX, funds from American clients were still siphoned off.
THE FinancialTimes a film has just been released on this scandal (which however fails to mention certain gray areas such as money laundering from Ukraine…).
FTX.US was a scheme to divert the attention of US regulators from malfeasance taking place in the Bahamas. New FTX CEO John Ray confirmed this in December:
“Questions have been raised as to why all FTX Group companies have been included in the bankruptcy proceedings, particularly FTX.US. The answer is that FTX US was not independent of FTX.com”.
Hence the concerns over Binance.US. Created in 2019 in Palo Alto (California), is the American exchange really a separate entity from Binance?
The Wall Street Journal gets involved
THE WSJ reported on Monday, March 6, about a private discussion from 2019 between Binance executives who were concerned about a “upcoming crackdown by US regulators on unregulated offshore exchanges”.
A manager declares that “Any lawsuit from US regulators would be a nuclear bomb for the exchange and its executives”.
According to messages and documents from 2018 to 2020 reviewed by the WSJ, as well as interviews with former employees, the exchange then set out to find a solution.
“The strategy was centered on the creation of an American exchange, Binance.US”says the WSJ. “Binance.US was to use Binance’s technology and brand through licensing, while appearing completely independent”.
The WSJ argues that the purpose of the maneuver, like FTX, was to prevent US regulators from regulating parent company Binance.
This intrigue could explain the desertion of CEO Catherine Coley in June 2021. Since then, it has been radio silence on her page Twitter from the one who declared in 2019: “We are a very separate entity.” “We only have licenses to use Binance software.”
His successor, former Comptroller of the Currency Brian Brooks, will pack his bags after just four months. So much so that Forbes, Reuters and now the WSJ suggests Binance.US is not an independent entity.
If this were the case, the WSJ believes that the SEC could then ” claim the power to oversee all of Binance’s activities”. ‘Billionaire Changpeng Zhao (CZ) and his finances could come under closer scrutiny’.
The companies behind Binance.US are owned by CZ
According to the WSJ, it was Harry Zhou who proposed at the end of 2018 to set up an American company to prevent the SEC from looking into all of Binance’s activities.
In February 2019, Mr. Zhou incorporated BAM Trading Services Inc (in the State of Delaware) which will become “the operator of Binance.US” .
In June of the same year, “Binance announces the creation of Binance.US in partnership with BAM Trading, the company that licenses the Binance technology and brand”writes the WSJ.
The newspaper then reveals that CZ, the founder and CEO of Binance, controls the BAM company through a series of entities incorporated in the Cayman Islands and the British Virgin Islands…
Binance’s spokesperson did not respond to requests for an interview with CZ. Harry Zhou and Wei Zhou also declined to comment on the WSJ findings.
Finally, it is also reported that the SEC is investigating the relationship between Binance.US and two trading companies (market makers) with ties to CZ: Merit Peak Ltd. and Sigma Chain AG.
Reuters saw similarities with Alameda Research, which was strongly denied by Binance.US. The exchange said that unlike FTX, “Binance.US has never used or lent its customers’ funds.”
The exchange had added that Merit Peak had no relationship with Binance.US since 2021. But no comment was made on Sigma Chain.
In short, the SEC takes the lead in order not to be confronted with another scandal at the FTX. These suspicions are all the more legitimate since Binance has just been caught red-handed with its stablecoin BUSD…
In retaliation, the chairman of the SEC is now proposing that wealth managers can no longer use exchanges for the custody of bitcoins. Hard blow for the exchanges.
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