Binance Raises Regulatory Concerns Regarding Customers' Funds and Crypto Assets

FACTS

III. UNDER ZHAO’S CONTROL, BINANCE PROVIDED EXCHANGE, BROKERDEALER, AND CLEARING AGENCY SERVICES TO U.S. INVESTORS THROUGH THE BINANCE.COM PLATFORM.

B. Binance Holds and Controls Customers’ Funds and Crypto Assets.

95. To utilize any of the functionalities on the Binance.com Platform, investors must create and fund accounts with Binance. Customers must have sufficient assets in their accounts to cover the value of any trading order, plus applicable fees. Once customers have funded their Binance accounts, they can buy, sell, transfer, and store crypto assets on the platform.

96. Customers can establish and fund Binance accounts with fiat currency or crypto assets. There are separate procedures for depositing crypto assets and for depositing fiat currency. To deposit crypto assets, customers are required to transfer crypto assets from their own crypto asset wallets on the blockchain to wallets that Binance controls. Binance holds these customer crypto assets in omnibus wallets, and it tracks transactions on the Binance.com Platform on an internal ledger.

97. If a customer submits a request to withdraw crypto assets from the Binance.com Platform, Binance transfers the requested amount of crypto assets from its omnibus wallets to a wallet designated by the customer on the relevant blockchain.

98. Since at least 2018, Binance has also allowed customers to fund their accounts and purchase crypto assets with U.S. dollars or other fiat currencies by, among other things, linking credit cards through a third-party processor, or through bank accounts or payment services. It also has corresponding methods of permitting customers to withdraw in fiat.

99. Until at least 2021, accounts in the name of Binance entities, beneficially owned by Zhao, sent billions of dollars of customer assets to U.S.-based bank accounts in the name of Merit Peak, which transferred to Trust Company A all of those funds that appear to relate to the issuance of Binance’s stablecoin, called “BUSD.” The use of Merit Peak as an intermediary to transfer platform customer money to buy BUSD presented an undisclosed counterparty risk for investors.