Business News Report
June 13, 2023

US Department of Justice Likely to File Criminal Indictment Against Binance, Reveals Former SEC Official

In Brief

The US Department of Justice is preparing to file a criminal indictment related to Binance, according to John Reed Stark, a former official at the SEC.

He claims the complaints brought against Binance and its CEO, Changpeng Zhao, are replete with allegations of fraud, deception, obstruction of justice, and potential money laundering.

A hearing has been scheduled for June 13, at 2:00 PM Washington time, to address the SEC’s request to freeze the assets of Binance.Us.

In a tweet posted on Monday, John Reed Stark, a former official at the US Securities and Exchange Commission (SEC) Office of Internet Enforcement, explained why the US Department of Justice (DOJ) is preparing to file, or has potentially already filed under seal, a criminal indictment related to Binance. 

US Department of Justice likely to file criminal indictment against Binance, reveals former SEC official

Drawing from his nearly two decades of experience in the SEC Enforcement Division and his involvement in joint prosecutions with the DOJ, Stark highlights a series of indicators that point towards an imminent criminal case against Binance.

Money Laundering and Fraud Allegations

Stark states that the complaints filed by the US Commodity Futures Trading Commission (CFTC) and the SEC against Binance and its CEO, Changpeng Zhao, are replete with allegations of fraud, deception, obstruction of justice, and potential money laundering. He suggests that these complaints read more like criminal indictments than civil regulatory actions.

CFTC’s Case

The CFTC lodged a comprehensive 76-page complaint against Binance, charging Changpeng Zhao, three Binance-operated entities, and Binance’s former chief compliance officer, Samuel Lim, with multiple violations of CFTC statutes and regulations. The complaint accuses Lim of aiding and abetting Binance’s violations and points to evidence suggesting that he knew certain Binance customers were involved in criminal activities. 

The CFTC further alleges that Lim assisted customers in circumventing compliance controls and advised them on potentially illicit activities to avoid detection. Additionally, the CFTC claims that Binance, Zhao, and Lim engaged in activities outside the United States to evade regulation and provided instructions to US customers on how to bypass compliance controls.

SEC’s Emergency Asset Freeze Action

Similarly, the SEC filed a detailed 136-page complaint against various Binance entities and Zhao, alleging that they commingled billions of dollars in customer funds and secretly transferred them to a separate company controlled by Zhao. The SEC contends that these actions enriched Zhao and the entities involved, while putting investors’ assets at significant risk.

The SEC complaint also draws parallels between Binance’s behavior and the criminal charges against FTX and its CEO, SBF, who allegedly misused customer deposits for personal gain. The SEC alleges that Binance’s trading firm, Merit Peak, received substantial amounts of customer funds from both Binance’s platform and Binance.US, transferring the majority of these funds to an unidentified company linked to the purchase of Binance’s crypto-token BUSD.

Moreover, the SEC asserts that Zhao used his company, Sigma Chain, to inflate Binance’s value artificially through market manipulation, including activities that targeted customers. 

On Jun 6, the SEC filed a temporary restraining order against Binance US to freeze its assets, indicating its belief that Binance has committed fraud. According to Bloomberg, Binance has urged a federal judge to deny the request as it would “cripple the company” and put customers’ funds at risk. 

A scheduled hearing has been set for June 13 at 2:00 PM Washington time to address the SEC’s request to freeze the assets of Binance.US.

Accounting Irregularities and Money Transfers

The SEC’s declaration regarding Binance’s accounting practices revealed a concerning pattern of fund transfers involving numerous Zhao-controlled entities. These transfers include significant sums of money sent to companies unrelated to Binance, such as a Hong Kong yacht brokerage and an Oklahoma-based private airplane title and escrow company. The SEC further identifies extensive transactions between various Zhao-controlled entities, which suggest a commingling of funds and a lack of transparency.

Obstruction of Justice Allegations

Stark also points out that both the CFTC and SEC complaints include allegations of obstruction of justice. The CFTC alleges that Binance’s CEO, Zhao, instructed Binance employees to promptly notify U.S. VIP customers of law enforcement inquiries concerning their accounts. These instructions, as revealed in an email, imply a veiled suggestion for customers to take evasive action without explicitly instructing them to do so.

According to the CFTC’s allegations, Binance’s VIP team was instructed to contact customers through multiple means and inform them that their accounts had been frozen or unfrozen due to investigation, without explicitly telling them to flee. Binance’s use of the encrypted messaging app, Signal, for such communications indicates an intention to evade detection and preserve secrecy.

Impending Criminal Charges

Stark suggests that the DOJ is likely collaborating with the SEC, CFTC, and multiple informants or whistleblowers. He believes that the next significant development in the case will involve the DOJ filing criminal charges related to Binance. While the CFTC and SEC cases focus primarily on regulatory violations and fraud, Stark believes that money laundering is the prosecutorial territory reserved for the DOJ.

The close cooperation between the SEC and criminal prosecutors, as mentioned in the SEC’s memorandum, further supports the notion that a criminal indictment is imminent. Stark concludes by cautioning that failure to take the impending criminal charges seriously would be perilous for Binance and its key individuals, as well as other crypto industry players.

To prepare for a criminal prosecution, Binance has added four lawyers from Milbank LLP to its legal team. One of them is George Canellos, former Chief of the Major Crimes Unit in the U.S. Attorney’s Office for the Southern District of New York and former head of the SEC’s New York Office and former SEC Enforcement Division Co-Director.

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Disclaimer

In line with the Trust Project guidelines, please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. MetaversePost is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.

About The Author

Cindy is a journalist at Metaverse Post, covering topics related to web3, NFT, metaverse and AI, with a focus on interviews with Web3 industry players. She has spoken to over 30 C-level execs and counting, bringing their valuable insights to readers. Originally from Singapore, Cindy is now based in Tbilisi, Georgia. She holds a Bachelor's degree in Communications & Media Studies from the University of South Australia and has a decade of experience in journalism and writing. Get in touch with her via [email protected] with press pitches, announcements and interview opportunities.

More articles
Cindy Tan
Cindy Tan

Cindy is a journalist at Metaverse Post, covering topics related to web3, NFT, metaverse and AI, with a focus on interviews with Web3 industry players. She has spoken to over 30 C-level execs and counting, bringing their valuable insights to readers. Originally from Singapore, Cindy is now based in Tbilisi, Georgia. She holds a Bachelor's degree in Communications & Media Studies from the University of South Australia and has a decade of experience in journalism and writing. Get in touch with her via [email protected] with press pitches, announcements and interview opportunities.

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