Merit Peak, an offshore trading company controlled by Binance CEO Changpeng Zhao, received around US$11 billion (about RM50.7 billion) of client assets through a Seychelles-based firm set up to take customer deposits, a US Securities and Exchange Commission filing shows.
The SEC filing, which on Tuesday asked a US court to freeze Binance's US assets, came a day after the SEC sued Binance, its billionaire CEO Zhao, and the operator of its US affiliate exchange, for allegedly operating a "web of deception."
In its 13 charges, the SEC alleged that Binance and Zhao used Merit Peak and Sigma Chain, another trading firm controlled by Zhao, to commingle corporate funds with client assets and use the monies "as they please." This put customers' assets at risk while Binance sought to "maximise" its profits, the SEC wrote in its civil complaint on Monday.
In response to the SEC's lawsuit, Binance said it would defend its platform vigorously. "All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure," it said in a statement on Monday.
The funds received by British Virgin Islands-based Merit Peak between 2019 and 2021 flowed from Key Vision Development Ltd, also controlled by Zhao, the SEC filing on Tuesday showed.
The US$11 billion sent from Key Vision to Merit Peak form part of the US$22 billion in assets – mostly belonging to Binance and its US affiliate – that Merit Peak received between 2019 and 2021, the SEC filing on Tuesday showed.
Binance did not respond to Reuters' emailed questions on the filing, and a spokesman did not respond to a voice message.
Reuters reported last month that Key Vision and Merit Peak, along with Binance's Cayman Islands holding company, formed the core of the global crypto exchange's financial network.
In response to that article, Binance denied mixing customer deposits and company funds, saying users who sent money were not making deposits but rather buying Binance's bespoke dollar-linked crypto token.
The SEC said in its lawsuit that Merit Peak, which described itself as trading with the "self-made wealth" of Zhao, operated on both the Binance.com and Binance.US platforms.
The SEC said in the filing on Tuesday it could not determine why an entity "purportedly trading" on Binance.US with Zhao's personal funds "acted as a 'pass through' account for billions of dollars of Binance Platforms customers' funds."
Between 2019 and 2023, Sigma Chain's US bank accounts received almost $500 million, mostly from Binance and BAM Trading, with US$15 million coming from Key Vision, the SEC's Tuesday filing said.
The SEC's filing on Tuesday gave further examples of how Binance and Zhao, one of the most prominent figures in crypto, allegedly moved "billions of dollars" through the US.
Some Zhao-owned accounts have sent monies "offshore" over the last few months, the SEC wrote in the filing.
Through 2022, a US account for a company called Swipewallet, of which Zhao is the beneficial owner, sent US$1.5 billion in foreign exchange wires offshore, the SEC said in the filing without elaborating. The SEC said in such processes, dollars are converted to a foreign currency before transmitting to a beneficiary.
Binance acquired Swipe, a digital wallet and debit card platform, in 2020. There have been no public posts on Swipe's social media accounts since early last year. Swipe did not respond to a request for comment.
In some of the most detailed examples of the fund transfers by Binance and Zhao, the SEC's filing on Tuesday alleged that on Jan 1 this year, US$840 million was deposited into eight companies owned by Binance and Zhao, with US$899 million withdrawn from those accounts "during that same time frame." At the end of March, all but one of the accounts had a balance of zero, the SEC said.
The SEC's filing also said between January and March this year, multiple Binance bank accounts then wired over US$162 million offshore to a foreign account belonging to a Singapore company beneficially owned by Binance's back office manager, Guangying Chen, a close associate of Zhao.
Binance did not respond to requests for comment on these alleged transfers.
Some US$32 million was also sent from Sigma Chain to Chen, the SEC said, without elaborating. Chen did not respond to Reuters' requests for comment.