This one sentence from CZ’s criminal settlement has raised eyebrows
On the day that Binance and its founder (CZ) pleaded guilty to federal crimes in Seattle, the crypto industry was stunned. There were endless reasons to be gobsmacked. Why did CZ step foot on US soil at all? How long might he go to prison? How could he and his company afford to pay their multi-billion dollar settlement? Does Binance have distant ties to Jeffrey Epstein?
Astute observers were questioning another, perhaps far more important event that day. In an obstinate post to X (formerly Twitter), CZ issued an incredible declaration, “I am proud to point out that in our resolutions with the U.S. agencies they do not allege that Binance misappropriated any user funds.”
Journalists blinked twice. One word in that sentence might impact CZ’s civil liberties. Were it not for “resolutions” that post would have been a lie on the very day that he thought he had signed a criminal settlement.
It’s not the best idea to mislead the public about a settlement with the US Department of Justice, two bureaus of the US Treasury, and the Commodity Futures Trading Commission (CFTC).
Read more: Changpeng Zhao resigns from Binance US board, transfers voting rights
The reason CZ’s sentence is so problematic is that the one US agency with whom Binance and CZ did not reach a resolution does allege that Binance misappropriated user funds. Indeed, according to the lawsuit filed by the Securities and Exchange Commission (SEC):
“Through accounts owned and controlled by Zhao and Binance, billions of U.S. dollars of customer funds from both Binance Platforms were commingled in an account held by a Zhao-controlled entity (called Merit Peak Limited).”
Needless to say, secretly redirecting Binance customers’ money into a privately owned crypto trading fund owned by CZ, as alleged by the SEC, is… not appropriate.
‘No misappropriation’ post CZ settlement
Binance and CZ have not resolved the SEC’s lawsuit. There is no public record of commissioners even offering a settlement. To be clear, their lawsuit could be worth many billions of dollars, depending on its final outcome.
The SEC alleges that Binance sold BNB and BUSD in illegal securities offerings, operated illegal securities exchanges for years, withheld information about investment risks from thousands of Americans, and illegally charged trading fees for operating its unregistered exchange, broker-dealer, and clearing agency.
If commissioners win their lawsuit and convince a federal judge to force Binance to disgorge all of the profits it obtained from these activities, that worst-case judgment would add billions more atop Binance’s existing, $4.3 billion payable. At worst, that final judgment could bankrupt Binance.
On the other hand, maybe Binance wins its lawsuit with the SEC. It is already the world’s largest crypto exchange and can certainly afford the world’s best defense attorneys. Another well-funded ICO issuer with high-powered attorneys, Ripple, famously won a partial victory in its SEC lawsuit.
CZ denies misappropriation and market manipulation
For his part, former Binance CEO Changpeng Zhao has denied the SEC’s allegations that entities he controlled commingled user funds. He also denies engaging in market manipulation.
Even if Binance wins its SEC lawsuit, it must pay its $4.3 billion settlement to resolve investigations from other government agencies: US Justice Department, US Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Asset Controls (OFAC), and CFTC.
The SEC case is still ongoing. It is specifically looking into whether CZ-controlled market makers called Merit Peak Ltd. and Sigma Chain not only inappropriately held customer funds, but also traded with customers’ money without their owners’ permission.
Read more: Top Binance exec Noah Perlman’s ties to Epstein, Moonstone, and Gemini
Reuters found evidence of the commingling in bank records and company messages. Dirty Bubble Media independently found evidence of the same commingling in addresses belonging to Merit Peak.
In summary, unfortunately for CZ, the exact allegations that he claims do not exist in his “resolutions” do exist in the 136-page complaint filed by the SEC.
CZ bragged, “Funds are SAFU,” in his statement on his resignation from Binance. However, customer funds have not always been as “SAFU” as he would have liked customers to believe.
If the SEC’s allegations are true, customers’ funds were occasionally misappropriated into non-Binance entities.
That also makes one word in CZ’s admission on the day of his criminal guilty plea — “resolutions” — a saving grace. Time will tell whether it can hold the weight of his unresolved obligations.
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