Binance's Efforts to Help Select Market Participants Evade Its Compliance Controls

L. Examples of Market Participants Currently Trading on Binance and Binance’s Efforts to Help Them Evade Its Compliance Controls

Trading Firm B

162. Trading Firm B is a quantitative trading firm headquartered in New York and incorporated in Delaware. Trading Firm B has at all relevant times been ultimately majority-owned by U.S. residents. Numerous senior managers, including the individual who functions as Trading Firm B’s CEO, have worked from Trading Firm B’s New York headquarters. Trading Firm B also has offices in London, Amsterdam, Hong Kong, and Singapore. Trading Firm B uses “proxy servers” to access the internet. Like VPNs, proxy servers obscure an internet user’s true IP address.

163. Trading Firm B conducts its digital asset trading activity on Binance through a dedicated trading desk that utilizes automated trading strategies programmed into computer algorithms developed by personnel at Trading Firm B’s New York headquarters, among other locations. Trading Firm B’s algorithms determine whether to place or cancel any orders based on the instructions in their code. Trading Firm B’s algorithms are built using computer code that Trading Firm B considers to be valuable intellectual property. Trading Firm B’s computer code is owned, directly or by assignment from its various wholly-owned subsidiaries, by Trading Firm B.

164. The global head of Trading Firm B’s digital asset trading desk works from Trading Firm B’s New York headquarters. Other employees, including members of the business development team responsible for interacting with Binance, also work from Trading Firm B’s New York headquarters.

165. Trading Firm B has been among Binance’s largest customers and has consistently received reduced trading fees due to its status as a Binance VIP. Binance has also permitted Trading Firm B to exceed Binance’s default order-messaging limits and has “whitelisted” Trading Firm B’s API connections to the platform’s matching engines so Trading Firm B can “benefit from lower latency and stability” relative to customers that do not have “whitelisted” connections. Binance personnel explained to Trading Firm B that Binance’s: “low-latency futures api/fstream . . . carry a different domain than the public fapi/fstream . . . which will route to a more dedicated machine/gateway that open exclusively for MM and top tier VIP clients. So generally client can expect a slight 5-10ms latency reduction on roundtrip for normal trading environment and more normalized latency distribution (less extreme tail) in busy environment.”

166. Beginning in July 2018, prior to the Relevant Period, Trading Firm B began trading digital assets in Binance’s spot markets through an account held in the name of a whollyowned HongKong-incorporated subsidiary.

167. On February 13, 2020, Trading Firm B tried to “open a futures account” and received an “error message.” Senior Binance personnel then concluded this may have been due to “US ip” or that “the UBO would be a US person.” Binance employees chatted: “How annoying,” and surmised that Trading Firm B’s account was “[g]randfathered” from “back before [Binance] screened for” the location of its customers. After confirming that Trading Firm B was a “US entity in our system,” Binance employees conferred with Trading Firm B’s New York-based cryptocurrency business development personnel and “discussed with him (a) short term opening a personal account and (b) moving this personal account to their HK legal entity in medium term.”

168. The next day, February 14, 2020, a Trading Firm B employee who is a resident of the United Kingdom opened a personal account on Binance. Trading Firm B then began to conduct its digital asset derivative trading activity in that account and would ultimately conduct substantially all of its corporate trading activity through this “personal” account for several years.

169. In August and September 2020, Trading Firm B asked Binance “to transfer [its] VIP status from” the account held in the name of Trading Firm B’s Hong Kong-incorporated subsidiary to the “personal” account held in the name of their United Kingdom-based employee. In January 2021, Binance confirmed that it understood Trading Firm B was trading on Binance through a “personal” account and at all times applied the VIP benefits associated with Trading Firm B’s corporate trading activity to this “personal” account.

170. Trading Firm B continued to trade BTC perpetuals and other derivative products through its “personal” account until approximately October 2022. Binance routinely communicated with Trading Firm B about the activity in Trading Firm B’s “personal” account, including through email to addresses with the domain @[tradingfirmb].com, and interacted with Trading Firm B personnel in a Telegram chat group titled “Binance < > [Trading Firm B].”

171. On March 11, 2022, Trading Firm B submitted KYC documents to Binance concerning an application for a “new” Binance account to be held by a nominee shell company organized under the laws of Jersey. The shares of this new nominee entity are “owned” by a third party that has no affiliation with Trading Firm B and does not exercise any control over Trading Firm B’s trading activity on Binance.

172. Trading Firm B’s Jersey nominee does not have any employees and does not have any meaningful sources of capital, apart from Trading Firm B. Trading Firm B’s Jersey nominee has entered into at least two contracts with Trading Firm B subsidiaries. First, a “Services Agreement.” Under the terms of that agreement, a Trading Firm B subsidiary agrees to provide office space, personnel, technology, information technology support, including maintenance of all services and systems databases, and “any services as the parties may agree from time to time.” Second, a “Confirmatory Note.” Under the terms of that note, a Trading Firm B subsidiary agrees to transfer funds to Trading Firm B’s Jersey nominee for the purpose of engaging in “Nominee Trading Activities.” In return, Trading Firm B’s Jersey nominee agrees to provide Trading Firm B with the “Net Proceeds” of its nominee trading activity on Binance.

173. On March 17, 2022, a New York-based Trading Firm B employee wrote to Binance: “I’m currently trying to make sure we can get our account entity-verified before the May 15 deadline . . . . We’ve been trying to set up a new account . . . do you think you could help us get more color on what info [Binance is] looking for?” A Binance salesperson responded:

I am channeling internally with the onboarding agent reviewing the case . . . . On the deadline [to open a new account], don’t worry, we will apply for a whitelisting for a couple of more weeks so there is no risk of trading disruption . . . . We cannot apply the new [KYC] documents to the existing account because it is a Personal Account. Once the corporate one is approved, we will help migrating with the ad hoc setups it might have.

On April 7, 2022, Trading Firm B received an email from Binance concerning the contemplated “new” account that read: Corporate Verification Successful.

174. Despite the “successful” corporate verification, Trading Firm B continued to trade through its “personal” account and on July 5, 2022, asked Binance if “it [would] be possible to apply the limits and mm levels to the new account immediately?” Binance responded that it had “good news” that it could “migrate” Trading Firm B’s “personal account (the one you guys are currently using for trading)” to the new account held by Trading Firm B’s Jersey nominee following “exceptional approval.” Still trading through its “personal” account as of October 6, 2022, Trading Firm B sent a Telegram message to Binance outlining “some things . . . to make sure get reflected in the new account to match our existing account,” including “rate limits, fee tiers/mms status, [and] withdrawal limits.” Binance responded: “we can do all.”

175. Ultimately, Trading Firm B did not even need to migrate its trading activity despite applying for a “new” account and getting “exceptional approval” from Binance. Instead, Binance just swapped out the name on Trading Firm B’s “personal” account with the name of the Jersey nominee. Everything else—VIP benefits, preferential matching engine access, open positions, even the account number—stayed the same. Trading Firm B continues to trade on Binance, including in digital asset derivative products such as bitcoin perpetuals.

176. Trading Firm B has been the real economic party to Trading Firm B’s trading activity on Binance at all times no matter what the name on its account has been. Trading Firm B has at all times capitalized Trading Firm B’s trading activity on Binance and the net trading revenue derived from its trading activity on Binance has been consolidated into Trading Firm B’s financial statements.