Project 1776: BAM Trading's Struggle with Binance for Independence

FACTS

IV. ZHAO AND BINANCE ESTABLISHED THE BINANCE.US PLATFORM WHILE MAINTAINING SUBSTANTIAL INVOLVEMENT AND CONTROL OF ITS OPERATIONS.

D. Zhao Rejected BAM CEO A’s and BAM CEO B’s Efforts to Give BAM Trading “Independence” from Zhao and Binance.

193. Over time, BAM Trading’s employees became increasingly dissatisfied with BAM Trading’s and the Binance.US Platform’s lack of independence and Zhao’s and Binance’s exertion of substantial oversight and control over the company’s day-to-day operations.

194. In January 2020, BAM Trading employees started compiling a list of “shackles,” i.e., functions “that require [Binance personnel’s] answers, access, approval, funding,” which demonstrated BAM Trading’s lack of independence and knowledge as to the platform’s operations. They noted, for example, BAM Trading’s compliance team experiencing a “lack of respect and transparency between Asia/US teams”; the fact that BAM Trading was “not allow[ed] to expand US Financial Team domestically”; and BAM Trading’s legal department needing a “[b]etter understanding” of BAM Trading’s “internal controls/IT infrastructure.”

195. BAM CEO A later reported to the Binance CFO that her “entire team is at their breaking point.” The Binance CFO later remarked that “getting our independence takes time.”

196. In the ensuing months, BAM CEO A worked with her team to propose a plan for BAM Trading to take control of more of its operations. In October 2020, she asked BAM Trading employees to diagram their job functions that required “global touchpoints,” meaning “where we rely on .com in our processes.” In response to the information she received, BAM CEO A remarked, “[Y]ou guys have a lot of .com gatekeepers now that I look at it.” Another BAM Trading employee responded, “LOL … Getting control over any of these (fees, or subaccounts or API limits) is an instant win.”

197. BAM CEO A dubbed this effort “Project 1776.” As she told another BAM Trading employee in October 2020, “Project 1776 is for our independence.”

198. On October 29, 2020, while BAM CEO A was working on Project 1776, a major news media company released an article reporting on Binance’s Tai Chi Plan, which the article described as Binance’s plan “to intentionally deceive regulators and surreptitiously profit from crypto investors in the United States.”

199. The article intensified BAM Trading employees’ concerns with Zhao’s and Binance’s control over the business—demonstrating that this significant level of secret control remained. As BAM CEO A explained to the Binance CFO shortly after the article was released, BAM Trading employees “lost a lot of trust with the article” and “the entire team feels like they’ve been duped into being a puppet.”

200. Binance, however, continued to resist efforts for independence. For example, on December 3, 2020, BAM CEO A reported to the Binance CFO that BAM Trading’s “[b]attle for the day” was for Binance’s clearing personnel to “inform[] us on their day-to-day and access,” but that the Binance Back Office Manager and another Binance employee “were unwilling to share their screens at all, they were like yeah you don’t need to know what we do day to day.”

201. As another example, on or around March 2021, Zhao decided to replace BAM CEO A with BAM CEO B, who formally assumed his position by May 2021.

202. When hired, BAM CEO B was aware of concerns about the relationship between Binance and BAM Trading and conditioned acceptance of the role on being able to run BAM Trading independently of Zhao and Binance. Believing that he could accomplish this goal, BAM CEO B made several public statements that BAM Trading was “not an alter-ego of Binance.”

203. Upon assuming his CEO duties, however, BAM CEO B quickly learned that Binance, in fact, exerted and would not relinquish substantial control over BAM Trading and the operation of the Binance.US Platform. As he testified under oath, BAM CEO B did not “have any firsthand knowledge of exactly what [Binance] entity managed [Binance.US Platform’s] servers,” but he knew it “wasn’t [BAM Trading].” Similarly, he also testified that the matching engine was “presumably owned and administered by some [Binance] entity, but I have no idea which one, and then there’s other servers doing other functions.” He concluded, the “biggest risk in this company is we are highly dependent on a bunch of technology that sits in Asia.”

204. BAM CEO B tried to implement plans to migrate those functions and control of the crypto assets from Binance to BAM Trading and into the United States, but Zhao quickly overruled him, causing BAM CEO B to resign approximately three months into his tenure.

205. As BAM CEO B testified, “[W]hat became clear to me at a certain point was CZ was the CEO of BAM Trading, not me.” He further explained that he spent his first 80 days as CEO trying “to get these core foundational things realigned,” but “was overruled on all of them” by Zhao. BAM CEO B elaborated, “All of the things that we had previously agreed and had worked on for 80 days were suddenly repudiated with no further discussion, and on that day, I realized, huh, I’m not actually the one running this company, and the mission that I believe I signed up for isn’t the mission. And as soon as I realized that, I left.”

206. During this period, and consistent with the Tai Chi Plan, Zhao and Binance publicly denied that they controlled BAM Trading. In a September 23, 2019 public interview, for example, Zhao stated, “Binance licenses its technology to Binance.US, while the business itself and local operations are managed by BAM Trading Services and [its] CEO.”

207. These and other statements were contrary to how BAM Trading and the Binance.US Platform actually operated. 208. Rather, Binance’s intent was clear. As Binance’s CCO admitted in October 2020,