How Binance Helps New York-Based Trading Firm 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 C

177. Trading Firm C, another quantitative trading firm that trades digital asset derivatives on Binance through automated trading strategies, is headquartered and incorporated in New York. Trading Firm C is majority owned by U.S. residents and the individual with the largest ownership share is also a U.S. citizen. Trading Firm C trades in numerous financial markets around the globe and is part of a corporate “umbrella” of commonly controlled affiliates and subsidiaries that has branch offices in London, Singapore, and Hong Kong, among other locations.

178. Zhao has communicated directly with Trading Firm C’s CEO, who has a New York phone number. In one Signal text chain, Trading Firm C’s CEO messaged to Zhao:

Hello CZ. This is [first name of the CEO] from [Trading Firm C]. Firstly I wanted to reach out and thank you for meeting with me and my team several weeks ago. Secondly, I also kindly wanted to follow up with [you] regarding the day limit on Spot. I have been struggling internally with my portfolio management teams to get traction on increasing the day limit as we are looking to expand our trading as well as bring on a few more portfolio teams onto the platform. Please let me know when it would be a convenient time to discuss with you. Thank you. We had heard that we would be expecting an increase last Friday but that did not happen, and we are not sure how to interpret.

Zhao replied within five minutes: “Looking into.” Zhao has also been a member of a Signal group chat titled “Binance/[Trading Firm C’s d/b/a],” that includes Trading Firm C’s New Yorkbased Chief Investment Officer.

179. Trading Firm C’s trading activity on Binance is conducted through automated trading strategies that use tailor made computer algorithms that take in market data and other trading information to generate orders to send to market to fulfil the strategies’ overall objectives. Development of Trading Firm C’s algorithms used for trading on Binance occurs in the United States and in other locations.

180. Trading Firm C conducts its trading activity on Binance through at least 15 independent trading teams, including teams based in and managed from New York. Trading Firm C’s trading teams are managed by “portfolio managers,” who are responsible for the overall management of their respective trading teams, including trading strategy development. Most, if not all, of the relevant portfolio managers are physically located in the United States and some are partners in Trading Firm C.

181. Trading Firm C’s trading activity, including its trading activity on Binance, relies on functionalities the development of which is supervised by three CTOs, two of whom are located in the United States and ultimately report to Trading Firm C’s New York-based CEO.

182. Trading Firm C and its commonly-owned corporate affiliate (a Delaware limited liability company) have been the real economic party to Trading Firm C’s trading activity on Binance at all times, regardless of whether it traded through accounts held by wholly-owned corporate subsidiaries or an off-shore nominee company. Trading Firm C’s net trading revenue derived from its trading activity on Binance is consolidated into the financial statements of Trading Firm C’s commonly-owned Delaware-incorporated affiliate and combined into Trading Firm C’s financial statements.

183. Initially, Trading Firm C traded on Binance through an account opened in the name of a Singapore-incorporated subsidiary. In approximately October 2021, Trading Firm C “migrated” its Binance trading activity to an account opened under the name of a corporate entity that is organized under the laws of the Cayman Islands. Binance confirmed that the “migration” would have “no impact on [Trading Firm C’s] trading.” Consistent with this representation, Binance ported over Trading Firm C’s VIP status including its reduced trading fees, as well as Trading Firm C’s low latency connection to Binance’s matching engines and ability to exceed Binance’s default order-messaging limits to the “new” account.

184. In connection with the opening of the “new” account, Trading Firm C informed Binance that it “structured” its Cayman Islands-incorporated nominee to roll up to a trust that owns certain “voting” shares but “does not hold any participating shares so all economic interest flows through [a holding company] and then to [Trading Firm C’s commonly-owned domestic affiliate] as the sole shareholder of the participating shares” so that Trading Firm C “retains all decision making power and economic interest” in its Binance account. Trading Firm C explained to Binance that the “main reason for using this structure is to comply with the Binance requirements” concerning “US beneficial ownership.”

185. Consistent with its understanding that the trading activity in the “new” account held by the Cayman nominee is attributable to Trading Firm C, Binance has communicated about that account with Trading Firm C personnel that use @[trading-firmc].com email addresses and through Telegram chat groups with titles that include “Binance” and “Trading Firm C.”

186. Trading Firm C continues to trade digital asset derivative products on Binance, including bitcoin perpetuals.