By James Davis
The latest report from Reuter has alleged that the world’s biggest crypto exchange Binance commingled billions in customer funds between 2020 and 2021. The report cites three unnamed sources who claim to be familiar with the matter. They allege that Binance used collapsed bank Silvergate to commingle the funds on a daily basis.
This is not the first negative story about Binance that Reuter has released. The media house recently claimed that the crypto exchange was involved in money laundering and suspicious funds transfers. Binance, however, denied these allegations like it’s doing now.
In a long Twitter thread, the exchange’s Chief Communication Officer, Partick Hillman, denied claims made in Reuter’s latest report, labeling the whole story fake. Hillman argued that Binance has been public whenever it recognizes its regulatory shortcomings. He then called out the media house for continuously publishing fabricated articles about the exchange.
The Reuter Report
Reuter reports that one of the anonymous sources presented Binance’s bank record indicating that on February 10, 2021, the exchange mixed about $22 million from its corporate account with $16 million received from a customer account. The media outlet blames Binance for the lack of proper internal controls that ensure client money is easily identifiable and separated from the firm’s revenues.
While commenting on the report, the US Securities and Exchange Commission’s (SEC) former director of Internet Enforcement, John Reed Stark, said Binance should not put customer money at risk in a way that users have to contract a forensic accountant to help locate it. However, Reuter says it did not find any evidence that Binance users lost their funds.
Companies that have commingled client funds in the past have caused severe losses to customers. Last December, the Commodity Futures Trading Commission (CTFC) and the SEC reported that the CEO of the fallen crypto exchange FTX, Sam Bankman-Fried, commingled funds of the platform’s users at his trading company Alameda Research and used them to make political donations, venture capital investments and buying real estate properties. That incident caused FTX to experience low liquidity, making it impossible for customers to withdraw their funds.
Binance’s Bank Partners
When Binance began operations in 2017, it only dealt with cryptocurrencies, enabling it to evade the traditional banking system. However, the growth in its customer base forced the exchange to partner with financial institutions to facilitate USD deposits. Silvergate, the bank in which it is alleged Binance commingled customer funds, allowed the trading platform to accept clients’ USD deposits until March 2023, when it shut down.
Following the Silvergate sudden collapse, Binance CEO Changpeng Zhao tweeted on March 28 that he was seeking to form new banking partnerships. Since then, which financial institution acts as Binance’s primary banker has remained unclear.