Elizabeth Lopatto

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.”

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.

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.”

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.

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.”

“[T]he best way I can think of is to onboard with US exchange ... but we let them trade on .com through a special arrangement.” He further explained, “[W]e ask them to onboard with US, and then if their volume is really very big ... we will push hard on .com side to accept it on an exceptional basis ... we always have a way for whales ... either we do it, or [a competitor crypto trading platform] does it.”

“Then if their volume is really very big we will push hard on .com to accept it on an exceptional basis ... CZ will definitely agree to this lol.” Lim continued: “but they need to really be doing sick ass volumes.”

We do need to let users know that they can change their KYC on Binance.com and continue to use it. But the message, the message needs to be finessed very carefully because whatever we send will be public. We cannot be held accountable for it.

We don’t want to lose all the VIPs which actually contribute to quite a large number of volume. So ideally we would help them facilitate registering companies or moving the trading volume offshore in some way—in a way that we can accept without them being labeled completely U.S. to us.

The Binance Consultant also recommended that Binance take steps to “reduce the attractiveness of enforcement” by U.S. regulators concerning the Binance.com Platform. This included publicly “restrict[ing] US persons’ access to the main Binance site” while privately encouraging U.S. customers to bypass these restrictions through the “strategic treatment” of virtual private networks (“VPNs”) that would disguise their locations and thereby “minimize [the] economic impact” of Binance’s public proclamations that it was prohibiting U.S investors on the platform.

As to the SEC, the Binance Consultant also recommended that, “just for publicity,” the Tai Chi entity should “release a long and detailed Howey Test Asset-Evaluation Framework ... to show Howey test sophistication” and then engage with the SEC to discuss the “formation or acquisition of a broker/dealer or alternative trading system (ATS), with no expectation of success and solely to pause potential enforcement efforts.”