Sigma Chain also engaged in wash trading on or around the time when BAM Trading made at least 65 new crypto assets, including crypto asset securities, available for trading on the Binance.US Platform. Between January 1, 2022 and June 23, 2022 alone, Sigma Chain accounts engaged in wash trading in 48 of 51 newly listed crypto assets.
Yikes!
Much of this wash trading occurred through numerous accounts affiliated with Sigma Chain, anentity owned and controlled by Zhao and operated by Binance employees at Zhao’s direction.
Sorry what?
. On June 23, 2020, for example, in discussing a drop in trading volume from market makers on the Binance.US Platform, BAM CEO A asked the BAM Trading’s Sales Director to “pull [Sigma Chain’s] data to hold them accountable too . . . they should be consistent too – we can ask for more volume but they’ve been up to 50% for us before.”
Sorry, what?
Wash trading between Sigma Chain’s accounts occurred from the launch of the Binance.US Platform in 2019 through at least June 23, 2022. This wash trading activity corrupted the Binance.US Platform’s reported trading volume in a strategic pattern that coincided with at least three critical periods for crypto asset investors and the Equity Investors: (1) the Binance.US Platform’s launch in September 2019; (2) BAM Trading’s making available certain new crypto asset securities for trading on the Binance.US Platform; and (3) the months leading up to BAM Trading’s seed funding round starting in September 2021.
Whoa is right:
On January 6, 2021, the Sales Director messaged BAM CEO A and other BAM Trading employees “fyi these are ALL sigma chain,” and then listed 20 account numbers. Another BAM Trading employee responded, “whoa.”
From May 2020 to February 2022, Alameda Research, the trading firm associated with FTX founder Sam Bankman-Fried, was often the OTC Desk’s only counterparty vis-à-vis BAM Trading customers.
So after the first CEO tried to get some independence, Changpeng Zhao replaced her with CEO B.
BAM CEO B tried to implement plans to migrate those functions and control ofthe crypto assets from Binance to BAM Trading and into the United States, but Zhao quickly overruled him, causing BAM CEO B to resign approximately three months into his tenure.
Okay!
So while the BAM CEO was trying to get some independence from Binance, a “news article” (probably this one!) dropped with details of Project Tai Chi.
As BAM CEO A explained to the Binance CFO shortly after the article was released, BAM Trading employees “lost a lot of trust with the article” and “the entire team feels like they’ve been duped into being a puppet.”
For example, by 2021, at least $145 million was transferred from BAM Trading to a Sigma Chain account, and another $45 million of funds were transferred from BAM Trading’s Trust Company B account to the Sigma Chain account. From this account,Sigma Chain spent $11 million to purchase a yacht.
So Sigma Chain was a market maker on Binance.US because it was Binance’s “own,” the complaint claims Zhao said. Merit Peak was also a market maker controlled by Zhao. “Sigma Chain’s and Merit Peak’s activity on the Binance.US Platform, and their undisclosed relationship with Zhao and Binance, have involved and continue to present conflicts between Zhao’s financial interests and those of Binance.US Platform’s customers,” the complaint says.
Also, one of the CEOs of BAM Trading didn’t like it:
“To the extent that these two liquidity providers were significant sources of liquidity, meaning that our customers couldn’t, you know, clear orders without the presence of those makers on our platform, I thought that was a real problem. It suggested that the company was, in fact, heavily dependent on CZ, not just as a control person but also as an economic counterparty and that is problematic, so I thought we needed to look into deplatforming them.”
“BAM Trading did not even implement a formal policy concerning its crypto assets custody and operations until May 15, 2023.” Today is June 5, 2023. For the record. FYI.
This is from the third letter an audit firm sent BAM Trading about its various deficiencies. I am sorry I am losing it how on earth did this go on so long.
In addition to controlling BAM Trading bank accounts that held customer funds,at least through December 2022, Binance was the designated custodian for crypto assets deposited, held, traded, and/or accrued on the Binance.US Platform, as expressly recognized in the SLAs. Internal communications indicate that BAM Trading and Binance understood that “.com is the custodian .us uses” and “CZ control[s] the wallet.”
Guys I do not love the banking system but I definitely love it better than whatever the fuck this is.
ohhhh my goddddd
Similarly, in December 2020, Binance transferred $17 million from BAM Trading’s bank accounts to Merit Peak. After learning of the transfer, BAM CEO A asked Binance employees about the transaction and eventually learned that the transfer related to Merit Peak’s trading on the Binance.US Platform. BAM CEO A responded, “thanks – helpful. Just had to get explanation anytime someone breaking our limits with massive withdraw[als] I have to ask – where you get that kind of money? And where is it going? . . . haha [I’m] on a wild goose chase to make sure we have knowledge of where $17M is moving around.”
Hahahahaha and people still have money on Binance ohhhhh my godddddd
Binance’s finance team could make transfers without BAM Trading’s knowledge, the complaint claims. At one point, the BAM CEO had to go ask what was up:
For example, in June 2020, when Trust Company B alerted BAM CEO A that BAM Trading’s internal transfers had increased from approximately $10 million per day to $1.5 billion per day, BAM CEO A had no knowledge of such transfers, was unable to verify them because she lacked appropriate account access, and, as a result, had to ask Binance (a purportedly separate and 43 distinct company) about the transfer of billions of dollars in BAM Trading’s own account.
That’s right, there are two of them testifying under oath to the SEC:
As BAM CEO A testified, there was “significant opacity” with respect to the Binance.US Platform’s trading data, and she “did not get answers from CZ on why or how or what we would need to do to be able to bring the data over” to the United States. She “wanted custody of the data and ability to interact with the raw data in real-time, as to my directions, not waiting on someone else’s approvals,” but she never received it.
Nor did the situation change when BAM CEO A’s successor (“BAM CEO B”) assumed the role in May 2021. BAM CEO B testified to SEC staff that the “level of ... connection” between Binance and BAM Trading was a “problem” and that he had concluded that BAM Trading “need[ed] to migrate the technology to full [BAM Trading] control.”
The point here is that Zhao directly controlled Binance US, including hiring the first CEO of BAM Trading. This CEO, unnamed in the documents, took direct orders from Zhao and called Binance the “mothership.”
Also:
Zhao gave final signoff on various decisions relating to the Binance.US Platform’s trading services, including customer account opening processes, development of the front-end access, and creating a reserve to cover ACH deposits.
When it came to the BNB token, it seems Binance was anticipating regulatory action:
In an internal chat in September 2019, the Binance CFO and the Binance CCO agreed that “CZ [wa]s willing to take the legal risk in listing BNB, if [they could] find a way to quantify it.” They further quantified the legal risk of listing BNB on the Binance.US Platform as “$10 mm in legal fees and settlements,” contrasted to the fact that BNB’s price could “go up 20%.” And, referring to the SEC’s June 2019 enforcement action in SEC v. Kik Interactive for the unregistered offer and sale of crypto assets as investment contracts under Howey, they noted that if a “Kik wells notice happens to BNB, BNB price can go down significantly.” The two also discussed that they would “start prepping everything” for a subpoena and Wells notice, including a “War chest.”