Binance CEO’s trading firm received $14.8 billion of client assets, says US regulator

The United States has sued Binance and its billionaire chief executive for allegedly operating a “web of deception”. PHOTO: REUTERS

LONDON – Merit Peak, an offshore trading company controlled by Binance chief executive Zhao Changpeng, received around US$11 billion (S$14.8 billion) of client assets through a Seychelles-based firm set up to take customer deposits, a US Securities and Exchange Commission (SEC) filing shows.

The filing on Tuesday asked a US court to freeze Binance’s US assets. It came a day after the SEC sued Binance, its billionaire CEO, and the operator of its US affiliate exchange for allegedly operating a “web of deception”.

In its 13 charges, the SEC alleged that Binance and Mr Zhao used Merit Peak and Sigma Chain, another trading firm controlled by him, to commingle corporate funds with client assets and use the monies “as they please”.

This put customers’ assets at risk while Binance sought to “maximise” its profits, the SEC wrote in its civil complaint on Monday.

In response to the SEC’s lawsuit, Binance said it would defend its platform vigorously. “All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure,” it said in a statement on Monday.

The funds received by British Virgin Islands-based Merit Peak between 2019 and 2021 flowed from Key Vision Development, also controlled by Mr Zhao, the SEC filing on Tuesday showed.

The US$11 billion sent from Key Vision to Merit Peak formed part of the US$22 billion in assets – mostly belonging to Binance and its US affiliate – that Merit Peak received between 2019 and 2021, the filing showed.

Reuters reported in May that Key Vision and Merit Peak, along with Binance’s Cayman Islands holding company, formed the core of the global crypto exchange’s financial network.

In response to that article, Binance denied mixing customer deposits and company funds, saying users who sent money were not making deposits but rather buying Binance’s bespoke dollar-linked crypto token.

The SEC said in its lawsuit that Merit Peak, which described itself as trading with the “self-made wealth” of Mr Zhao, operated on both the Binance.com and Binance.US platforms.

The SEC, in its Tuesday filing, said it could not determine why an entity “purportedly trading” on Binance.US with Mr Zhao’s personal funds “acted as a ‘pass through’ account for billions of dollars of Binance Platforms customers’ funds”. Between 2019 and 2023, Sigma Chain’s US bank accounts received almost US$500 million, mostly from Binance and BAM Trading, with US$15 million coming from Key Vision, it said.

Money sent offshore

Some Zhao-owned accounts have sent monies “offshore” over the last few months, the SEC wrote in the filing.

Through 2022, a US account for a firm called Swipewallet, of which Mr Zhao is the beneficial owner, sent US$1.5 billion in foreign exchange wires offshore, the SEC said, in the filing without elaborating.

The SEC said in such processes, dollars are converted to a foreign currency before transmitting to a beneficiary.

Binance acquired Swipe, a digital wallet and debit card platform, in 2020. There have been no public posts on Swipe’s social media accounts since early 2022.

Swipe did not respond to a request for comment.

In some of the most detailed examples of the fund transfers by Binance and Mr Zhao, the SEC’s filing alleged that on Jan 1, 2023, US$840 million was deposited in eight firms owned by Binance and Mr Zhao, with US$899 million withdrawn from those accounts “during that same time frame”. At end-March, all but one of the accounts had a balance of zero, the SEC said.

The SEC’s filing also said that between January and March this year, multiple Binance bank accounts then wired more than US$162 million offshore to a foreign account belonging to a Singapore company beneficially owned by Binance back office manager Chen Guangying, a close associate of Mr Zhao.

Binance did not respond to requests for comment on these alleged transfers.

Some US$32 million was also sent from Sigma Chain to Ms Chen, the SEC said, without elaborating.

Ms Chen did not respond to Reuters’ requests for comment. REUTERS

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