The former SEC executive and law John Reed Stark turned to Twitter to explain why he thinks that the U.S. Department of Justice (DOJ) will go against the crypto exchange Binance. He thinks that the U.S. DOJ has either filed or is planning to file a criminal indictment related to Binance. Money laundering entails concealing financial assets to enable their use without detection of the illicit activities that generated them.
The complaints filed by the CFTC and SEC, in Stark’s view, resemble criminal indictments as they contain allegations of fraud, deception, obstruction of justice, and money laundering.
The CFTC Complaint
The CFTC lodged a complaint spanning 76 pages against Binance, accusing Changpeng Zhao (CZ) and three Binance entities of numerous violations of CFTC statutes and regulations. Additionally, the complaint charges Binance‘s former chief compliance officer, Samuel Lim, with aiding and abetting the violations committed by Binance.
According to the CFTC, Lim was aware that certain Binance customers were involved in illegal activities. The CFTC also alleges that Lim provided false assurances to regulators regarding Binance‘s compliance practices and advised customers on evading compliance controls. Furthermore, the CFTC claims that the defendants assisted US VIP customers in bypassing Binance‘s compliance controls.
The CFTC asserts that Binance, CZ, and Samuel Lim engaged in activities outside the US to evade CFTC regulation. They allegedly instructed US and other customers on how to circumvent Binance‘s compliance controls. The CFTC provides evidence supporting these claims.
The SEC Complaint
Similarly, the SEC filed an emergency asset freeze action, detailing in a 136-page complaint that certain Binance entities and CZ commingled billions of dollars in customer funds and secretly transferred them to a separate company controlled by CZ. This action allegedly enriched themselves by billions of US dollars while exposing investors’ assets to significant risk.
The SEC draws parallels between some of the allegations against Binance and the misconduct that led to criminal charges against Sam-Bankman Fried (SBF) in the FTX case, where customer deposits were misused for personal gain. The SEC further alleges that Merit Peak, a trading firm controlled by CZ, received over $20 billion, including customer funds from both the Binance platform and Binance.US.
The SEC also accuses CZ of conducting market manipulation operations and that he allowed high-value US customers to continue trading on Binance.com, despite publicly stating otherwise.
The SEC presents evidence of numerous inculpatory asset transfers, including funds sent to various companies under CZ‘s control. The accounting expert’s declaration reveals asset transfers involving entities like Simpson Marine (S.E.A.) Pte Ltd., INSURED AIRCRAFT TITLE SERVICE LLC, Coinbase, and Alameda Research. The SEC identifies multiple Binance accounts under CZ‘s control, showing transactions between different CZ-controlled entities.
Obstruction of Justice
Regarding obstruction of justice, the CFTC alleges that Lim, following instructions from CZ, created a policy for employees working with VIP customers to promptly notify them of law enforcement inquiries about their accounts. CZ is said to have devised a secret plan to instruct US-based VIP customers to evade Binance‘s compliance controls and instructed employees to communicate about their control subversion using applications that automatically delete messages.
Binance allegedly offered special services to customers targeted by law enforcement and utilized Signal’s auto-delete function for communication, even after receiving document requests and preservation notices.
Criminal Charges
The SEC’s Memorandum of Support suggests that Binance and CZ are under investigation by criminal authorities, although no further details are disclosed. While the CFTC and SEC cases do not explicitly focus on money laundering, it is my belief that this is an area where the US DOJ may pursue criminal charges against Binance.
Based on the information available, John Reed Stark thinks that the US DOJ may soon unseal criminal charges related to Binance.