LONDON, June 5 – A senior Binance executive was the lead operator of five bank accounts belonging to the giant cryptocurrency exchange's allegedly independent US subsidiary, including an account that held funds from US clients, bank records show.
US lender Silvergate Bank authorized the executive, Guangying Chen, a close aide to Binance CEO Changpeng Zhao, to operate the accounts in 2019 and 2020, according to records for those years. This allowed Chen and his associates to move funds into bank accounts. Employees of the subsidiary, Binance.US, had to ask Chen's team to process the payments, including to cover the company's payroll, company messages show.
The new findings offer more details about how Binance exercised tight control over Binance.US, despite both companies maintaining that they have always operated independently. Previously unreported bank records and messages show Binance's management of the US company's finances spread through its Silvergate bank accounts and detail how this secret access was granted.
Binance.US has denied that Binance ever operated its bank accounts. Its legal chief, Krishna Juvvadi, told Reuters in April that employees of Binance.US operator BAM Trading had "sole control" since its founding in 2019.
However, in response to questions for this article, a Binance.US spokesperson, Christian Hertenstein, said that since the company's current CEO, Brian Shroder, took over in late 2021, "no one but the Binance.US officials have had control of or access to Binance.US accounts.” Hertenstein did not explain the discrepancy in the time periods given by him and Juvvadi.
Binance and Silvergate, which collapsed in March and is shutting down, did not respond to requests for comment.
Binance's US operations are receiving increasing attention in Washington. By secretly keeping control of Binance.US's finances, Zhao ensured that he could direct the company's expansion into the US crypto market, one of the largest in the world, while also keeping it apart from its global exchange that was under the scrutiny of US regulators.
The US Commodity Futures Trading Commission in March accused Binance and Zhao of willful evasion of commodity laws by "intentional structuring entities" to avoid US regulations designed to protect investors. . Zhao called the civil charges an "incomplete recitation of the facts." The CFTC had no comment for this article.
Reuters has previously reported that a Chen deputy gained access to a Binance.US Silvergate account and that the account transferred more than $400 million in 2021 to a trading company controlled by Zhao. Binance.US has said that the trading company, Merit Peak, was withdrawing its own funds, money that was derived from its trading activity on the exchange. Juvvadi said that an investigation Binance.US conducted into the previous Reuters findings found that they were "simply not true."
Reutersalso reportedon May 23 that Binance commingled its client funds with its corporate income in Merit Peak's Silvergate account, in violation of US financial rules that require client money to be kept separate. Binance denied mixing customer deposits and company funds, saying that users who sent money to the account were not making deposits but buying the dollar-pegged crypto token tailored to Binance.
'MAIN ADMINISTRATOR USER'
The Binance.US trading platform was launched by its operating company, BAM Trading, in mid-2019 under the executive direction of Catherine Coley. Zhao owned BAM Trading through layers of offshore companies, company documents show. But Binance.US said it was operating solely as a "US partner" of Binance. Reuters reported last year that, in fact, Zhao created Binance.US as a de facto subsidiary to take the scrutiny of US regulators away from the global exchange.
In December 2019, a Binance.US employee told Coley that Silvergate wanted her to sign a bank resolution, a document that defines a company's banking relationship, to "make sure it's okay" for Chen to manage the bank accounts. from Binance.US, according to messages exchanged between Binance.US employees. The resolution document, reviewed by Reuters and written by a Silvergate relationship manager, requested that Coley authorize Chen to "open, transact and operate" accounts on behalf of BAM Trading. A person familiar with the document said Coley signed it.
Coley left Binance.US in 2021. An attorney representing her, James McDonald, did not respond to requests for comment.
Chen then entered into additional agreements with Silvergate to act as the "Primary Admin User" for the five bank accounts: a customer deposit account; an account for corporate clients who then sent funds to Merit Peak; and three other accounts, according to bank records dated between December 2019 and January 2020. The agreements said the authorized person could withdraw funds from the accounts or deposit them, and designate others to do so as well.
Coley told colleagues in a message later that year that she and her finance team were not administrators of the BAM accounts and only had view access. The deal left the head of Binance.US without ultimate control over the company's own finances. “We can't change anything” on the Silvergate banking portal, she wrote.
Hertenstein, the spokesperson for Binance.US, told Reuters that "since at least 2021, the only 'Primary Administrators' on active Binance.US accounts have been Binance.US officials." He said that some of the accounts identified by Reuters as being operated by Chen were "institutional client accounts", without elaborating on his activity.
After Chen obtained clearance, his deputy, a Binance executive named Susan Li, took over managing account transactions, including payments to cover the Binance.US payroll, company messages show. “Approved by me,” Li messaged a Binance.US employee after receiving a payroll application.
Chen, known as Heina, retained control of the accounts until at least early 2021, the messages show. The Silvergate documents she signed listed her Shanghai address. A Binance.US employee messaged her colleagues in May 2020 to say that Silvergate was "still waiting for Heina to sign the final paperwork" on a new bank account for institutional clients of the Binance.US exchange.
Reuters was unable to determine whether Chen or Li moved funds from the client's Binance.US deposit account. Neither Chen nor Li responded to questions from Reuters.
“Customer funds have not been misused or commingled,” Hertenstein said on Binance.US.
Coley and his team repeatedly asked Li throughout 2020 to have Binance grant them control of Binance.US's own bank accounts, at one point raising concerns about how regulators would view the situation, company messages show. “I think it makes sense for BAM to have its own login for the regulatory perspective,” a Binance.US CFO wrote to Li in November.
Coley also later expressed concerns to Li that the transfers to Merit Peak were being made without his knowledge, according to the messages. Reuters previously reported.
Binance.US did not respond to questions about Chen's role, including his control of the accounts or when it may have ended. It's "difficult to talk about every single detail" because the company's "management team has been completely restructured since the period in question," Hertenstein said.
Juvvadi, the legal head of Binance.US, said that the fund flows to Merit Peak were correct. The internal investigation compared all transfers to Merit Peak with withdrawals the trading company made from its own digital asset account on the Binance.US platform, he said. “All the funds belonged to Merit Peak,” he said.
Juvvadi declined to provide further details about Merit Peak's business or Zhao's role in the company.
Reported by Angus Berwick and Tom Wilson. Edited by Janet McBride and Michael Williams
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