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Binance, The Embattled Cryptocurrency Exchange Once Again Being Investigated by The SEC

Binance, The Embattled Cryptocurrency Exchange Once Again Being Investigated by The SEC

According to the Wall Street Journal, the Securities and Exchange Commission (SEC) in the United States has begun an inquiry into Binance.US because of the company's alleged relationship with two trading firms that are allegedly trading against Binance.US consumers.

There are two market makers who used to be owned by Binance CEO Changpeng Zhao, Sigma Chain AG and Merit Peak Ltd. Binance.link US's with the two companies, both of which trade with Binance.US consumers, is claimed to be a focus of the investigation. U.S. securities laws prohibit profiting through deception or omitting material facts in dealings with customers.

Claims that Binance is hiding its business structure from regulators and flouting legal restrictions are consistent with the company's well-documented practices. Assuming the reports are genuine, Binance appears to have committed a major violation of the securities law disclosure rules—at the very least.

Whereas Binance has gone to great lengths to hide the fact, Sigma Chain AG and Merit Peak Ltd, are so tightly linked to Binance that they could be considered subsidiaries.

Founded in Switzerland, Sigma Chain AG is a registered business. As a founder member of the corporation, Changpeng Zhao is listed in public records, while Pascal Schmid, a former member of Cardano Foundation, is the sole other member from this period. This job was held by Zhao till the end of September of this year. Then Guangying Chen took over leadership of the corporation at that moment, it is still listed as having him as a director today. A Binance board member named Markus Felix Spillman took Schmid's place on July 14, 2021.

Guangying Chen is a mystery, yet he or she is frequently mentioned in relation with Binance and Zhao. She was included on a list of digital asset companies that were allegedly being investigated by Chinese officials in 2017 according to a leaked document. Guanying Chen is listed as Binance's representative on the LibreHash list, which was compiled by an independent investigative journalist. It was also found that Guangying's identity appeared on old whois records for Binance domain names, including that of the company's own website, scambinance.com.

Another company, Merit Peak Ltd., does not have any publicly available information. In the British Virgin Islands, there appears to have been a shelf firm with the same name. Merit Peak Ltd appears to be a shell company for Binance based on the company's non-existence online and the vast quantity of company names affiliated with Changpeng Zhao and Guangying Chen. An SEC investigation into Merit appears to have already been completed, according to the Wall Street Journal, which claims to have seen paperwork signed by Zhao on Merit's behalf "approving an inflow of funds from Merit into Binance.US in exchange for shares."

Despite the best efforts of Merit Peak Ltd and Sigma Chain AG, it is clear that they are subsidiaries of Binance. It's clear that neither Binance nor its affiliates have been made public in any of the company's publicly available publications. There is speculation that the SEC's examination is centered on how much activity the two companies are responsible for in the Binance ecosystem and what benefits they may have gotten over Binance's regular clients.

Misled investors and authorities alike have begun taking action against exchanges that allow affiliate traders to trade against their own consumers, as the Wall Street Journal noted. While the SEC has taken action against other exchanges for failing to identify affiliates trading on their platforms, the BitMEX founders are facing criminal prosecution and private RICO cases for market manipulation and trading against its consumers.

For Binance, the investigation would be a rude awakening. The embattled exchange launched a planned $200 million investment into Forbes, one of Binance's most persistent detractors in the mainstream media, only days before this current inquiry was disclosed.

As a result of their investigation into Binance, Forbes learned about a plan to set up a U.S. subsidiary with an outward focus on compliance and then secretly teach consumers on how to dodge geoblocks and access the parent Binance exchange, which was leaked internally by the company itself. That plan appears to be (at least in part, if not all) embodied in what is now called Binance. US.

Whether or if the move, as clever as it is, is enough to halt the flood of negative headlines surrounding Binance remains to be seen. Binance and Zhao, on the other hand, can't invest their way out of an SEC investigation.

The SEC will have to line up. The CFTC has already opened two investigations into the company, including allegations of insider trading and market manipulation. It has been blocked by banks for compliance issues and blocked 86 times by multiple countries for most of 2021.

The role of a market maker is critical in the world of trading. When the market is turbulent, they continue to purchase and sell to smooth out price swings. Payouts are made by taking a tiny percentage of the difference between the bid and the offered price.

When trading venues did not disclose that they had affiliates trading on their platforms, the SEC filed enforcement actions against them. Earlier this year, Investment Technology Group Inc., which was eventually purchased by Virtu, paid $20 million and acknowledged to violations, including operating a hidden trading desk that interacted with orders placed to ITG's trading platform, known as a dark pool.

"Are you giving your affiliate any sort of unfair advantage?" James Angel, a finance professor at Georgetown University's McDonough School of Business, asked.

According to B2C2 Ltd. co-CEO and cryptocurrency market maker Rob Catalanello, unlike market makers who trade regulated instruments like stocks or ETFs, those in cryptocurrency markets are not regulated and their methods can vary greatly.

He lamented the "great lack of standards" in the industry.

Sam Bankman Fried, a market maker for FTX, is also the founder of Alameda Research. While Alameda does trade on the FTX, "their volume is a very minor part of overall exchange volume, and their account's access is the same as other accounts."

A spokeswoman for another major cryptocurrency exchange, Coinbase Global Inc., said that none of the company's management or board of directors are associated with market makers.