‘FTX-Style’ Fraud? - SEC Continues its Binance Probing
29 Nov 2023 by Rory Kejzerko 3 min read
‘FTX-Style’ Fraud? - SEC Continues its Binance Probing

Although it was originally thought that Binance’s settlement with the US Government was more or less ‘settled,’ it appears that regulators aren’t done with their probing, as now the Securities and Exchange Commission (SEC) is searching for more evidence that proves potential fraud at the crypto exchange’s US division. 

Per a report from the Wall Street Journal (WSJ), the SEC is suspecting that Binance engaged in ‘FTX-style’ fraud, wherein its now-resigned CEO Changpeng Zhao (CZ) had a ‘backdoor’ to control assets on the platform (as did his arch-nemesis Sam Bankman-Fried). Such case stems from allegations that Binance diverted customer assets at its discretion on multiple occasions, including when sending money to Switzerland-based Sigma Chain under CZ’s control.

In short, the settlement made last week revolved around a complex conspiracy that involved fraud, conflicts of interest, a lack of disclosure, and willful disregard for the law, as well as the old ‘unregistered securities offering’ chestnut. In turn, it resulted in Binance paying a $4.3 billion fine, CZ resigning and paying a personal $150 million fine, and Richard Teng filling in as the new CEO (amongst other stipulations). 

However - as is evident as of today - such case didn’t include any of the SEC’s fraud-related claims, which arose via its June 2023-initiated investigation into the exchange. 

Additionally, CZ now has to wait around 3 months for his February 2024 sentencing date, which could potentially result in a custodial sentence of up to 18 months. Here, a judge has recently denied his request to leave the US throughout such timeframe, meaning the crypto figure must remain in the US as he continues exploring new areas of crypto innovations.

In response to the SEC’s new fraud concerns, Binance US attorney Matthew Laroche has asked a federal judge to consider ending the investigation, on the grounds that it has no evidence that customer assets have been misused. 

In referring to the inescapable damage that came from the case, Laroche also cited the lawsuit’s unnecessary expenses that’ve been piling up, as well as the fact that the exchange’s US division has seen its assets plunge almost 90%, as well as its user base being cut in half. 

Potential Binance Fraud - How Will it Play Out?

U.S. Magistrate Judge Zia Faruqui is the all-important fate-decider in the case. 

Interestingly enough, Faruqui - who is the US’s first ever Muslim Magistrate judge - has already shown aversion to the new claims, stating that “at some point, I have to make a leap of faith and say enough is enough”.

Further, such attitude stems from the fact that Binance’s and CZ’s guilty pleas make it less likely that a misappropriation of customer funds occurred. 

In turn, Faruqui has reportedly asked Binance US and the SEC to resolve the dispute and update him by December 15.

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This article is intended for educational purposes and is not financial advice.