Closeup shot of one golden binance coin over motherboard

Binance deal for Voyager assets: US federal, state agencies object

Binance’s plan to acquire Voyager Digital’s assets hit a speed bump Wednesday as U.S. federal, and state regulators asked for more details on who was buying what with whose money.

Wednesday saw the U.S. Securities and Exchange Commission (SEC) file an objection to the acquisition of bankrupt digital asset lender Voyager’s remaining assets by Binance US, the U.S.-facing offshoot of the Binance.com digital asset exchange. Shortly before Christmas, Binance US won the second auction for Voyager’s assets after FTX US, the winner of the first auction, filed for bankruptcy protection in early November.

The SEC’s objection is based on its skepticism over “the ability of Binance US to consummate a transaction of this magnitude.” BAM Trading Services (aka Binance US) bid $1.02 billion for the Voyager assets, despite the U.S. exchange having a trading volume about 1/10th the size of U.S. rival Coinbase (NASDAQ: COIN). This raised questions about where the money was coming from, particularly after Binance eliminated fees on certain trading pairs last year.

In reality, the Binance US offer consists of only around $20 million in “incremental value,” aka actual cash, making the deal effectively a relatively cheap acquisition of Voyager’s 3.5 million customer accounts. Voyager customers will find themselves on Binance US, into what’s left of their Voyager assets will be deposited and (Binance hopes) traded for new assets on the exchange, then traded again, and again, and… well, you get the picture.

Regardless, the SEC also expressed concern over “the nature of Binance US’s business operations after the acquisition.” And they’re not the only ones.

On December 30, the U.S. Committee on Foreign Investment in the United States (CFIUS) announced that it was conducting a national security review of the Voyager deal. Citing the Defense Production Act of 1950, CFIUS expressed concern over a deal that might result in “foreign control of any United States business.”

The CFIUS got involved because Binance was founded in 2017 in China by Changpeng ‘CZ’ Zhao, who was born in China but emigrated to Canada along with his parents when CZ was still a boy. CZ has lived a nomadic existence since launching Binance, which to this day lacks a central headquarters, a ploy intended to limit the ability of any jurisdiction to take decisive action to curb the exchange’s numerous law-flouting antics.

While the CFIUS filing doesn’t mention Binance, the document was signed by Damian Williams, U.S. Attorney for the Southern District of New York. Williams recently filed eight criminal charges against Sam Bankman-Fried, the disgraced founder of the FTX exchange and its affiliated market-maker Alameda Research, and is actively prosecuting other FTX/Alameda execs.

It’s worth remembering that the Department of Justice (DOJ) and the SEC (along with the Commodity Futures Trading Commission) all hit FTX/SBF with charges on the same day last month. It’s therefore not unreasonable to surmise that the DoJ is collaborating closely with other federal and state-level agencies on all things Binance. Read on…

New York state of (criminal) mind

Similar concerns over Binance’s deal for Voyager’s assets were voiced in a separate objection filed by the U.S. Trustee for Region 2, which oversees the administration of bankruptcy cases in New York, Connecticut, and Vermont. The Trustee cites “vague statements regarding [Voyager’s] purported risk assessment regarding Binance US’s financial condition.”

The Trustee reminds the bankruptcy court that Voyager previously rushed headlong into FTX’s arms, only for that deal to blow up in their face. “One would have thought that the Debtors would undertake an extra effort” to avoid a repetition of this debacle, but noooooo…

The U.S. Trustee’s objection notes that the acquisition hinges on the ability of Binance US to obtain Money Transmitter Licenses in four U.S. states. In the meantime, Binance US will enjoy “total control over the cryptocurrency of Voyager’s customers for up to six (6) months before those customers would gain access to that cryptocurrency.” The Trustee also has no info on “the security protocols under which Binance proposes to protect the customers’ cryptocurrency it is to hold.”

The four states are Hawaii, New York, Texas, and Vermont. Binance US currently doesn’t accept customers from those four states, with New York being particularly strict about who/what it lets conduct digital asset trades. To acquire the necessary license in New York, Binance US may have to offer up more detail than it has to date regarding its ties to CZ and the Binance.com mothership. And as Texas has learned, getting info on CZ is like talking to a Magic 8-Ball.

Don’t mess with Texas

The Texas State Securities Board (TSSB) filed its own objection to the Binance/Voyager deal, citing an investigation dating back to 2019 into Binance.com’s Lending program, which offered yield-bearing products promising returns of up to 15%. In May 2021, this open investigation was consolidated to include “Binance.com, Binance.us, and Zhao, as well as Celsius, Voyager, and others believed to be parties dealing in the same or similar investments.”

Last October, the TSSB filed to pause the FTX acquisition of Voyager’s assets based on an open investigation into whether (a) the U.S.-registered FTX US was offering unregistered securities to Texas residents, and (b) FTX.com was also dealing with Texas-based customers without local approval.

The TSSB’s current objection reminds the court that Binance US “applied for but failed to obtain a money transmitter license in Texas.” The application was abandoned because Binance US “repeatedly failed to provide material information relating to entities under common majority ownership with Binance.us” or information about CZ’s personal finances to the Texas Department of Banking.

The TSSB details four instances between September 2021 and November 2022 in which Binance US promised to provide the requested information. In May 2022, Binance US said CZ was “diligently working to provide an updated personal financial statement.” In September, CZ was said to be “diligently working to provide updated personal financial information to address this request.”

In December, Binance US publicly claimed to have closed a seed funding round at $4.5 billion. However, the TSSB notes that Binance US “has not filed current audited financial records in the bankruptcy proceedings reflecting its capitalization,” forcing creditors to take them at their word.

The TSSB also expresses concern over Binance US’s terms of service, which Voyager users will have to accept in order to access their funds. These terms “effectively permit Binance.com to act in the U.S. even though Binance.com purportedly does not deal with U.S. customers.”

The filing cites Binance US’s reliance on “market-makers, including Related Parties” and market-makers based outside the U.S. Binance US also requires customers to accept that their assets could be shared with these unidentified third-parties via “a custodial relationship that has attendant risks.”

Just before Christmas, blockchain sleuths discovered some digital wallets associated with Binance.com that appeared to be funneling millions in tokens to Binance US to enable the U.S. site to honor a flood of withdrawal requests. Further digging revealed that two wallets had funneled billions between the two exchanges—which claim to be ‘independent’ entities despite both being owned by CZ—in just a couple of years.

Following these revelations, CZ copped to being a “major shareholder” in a market-maker that does business with Binance. The activities of these two wallets further tarnish CZ’s claims of Binance US’s independence—a claim that had already been widely debunked—and suggests that U.S. customer funds are routinely commingled with those of their dot-com counterparts.

That commingling would be more than sufficient justification for U.S. authorities to bring the hammer down on CZ’s operations. Not that they don’t already have enough provocation. In 2019, around the time that Binance.com pretended to withdraw from the U.S. market, CZ brazenly suggested U.S. users could continue to access the exchange using a virtual private network (VPN).

A ‘striking’ paucity of info

Yet another objection to the Voyager deal was filed on behalf of a group of ‘objecting states’ comprising Alabama, Arkansas, California, Hawaii, Maine, North Dakota, Oklahoma, South Carolina, and Vermont, plus the District of Columbia. The gist of this objection involves the “striking” lack of information provided by Voyager regarding the Binance US deal.

The states also take issue with Voyager’s claims that Binance US is “buying” Voyager customers’ assets, noting Binance US is actually paying $20 million to acquire custody of said assets. The states refer to this $20 million as “basically a minimal marketing expense” aimed at convincing Voyager customers to keep their assets on Binance US.

Echoing the commingling reports, the states bemoan the lack of clarity regarding “which Binance entity will have custody of the assets” and why Voyager customers in the four states not served by Binance US will have to wait until the exchange acquires the necessary licenses before regaining access to their assets. “The fact that Binance US wants more time to try to obtain legal status so it can hold the accounts of those parties is not an adequate justification.”

Alameda wants its stolen money back

A very left-field objection came from Alameda Research. Alameda is now under control of the FTX creditors group. This objection cites the “rescue financing” Alameda provided to Voyager in June 2022.” This consisted of $200 million in cash or Circle’s USDC stablecoin, plus 15,000 BTC tokens. Around $75 million of this financing “was immediately drawn in USDC” and remains outstanding.

Alameda is therefore “a substantial shareholder of Voyager” and the rusting hulk of Voyager has no right to “exact some form of revenge on Alameda for the failure” of FTX’s aborted acquisition of the Voyager assets. Never mind that the entirety of FTX/Alameda’s transactions over the past two years or so involved treating customer deposits as operating capital.

The Alameda filing indicated that a hearing on the Binance/Voyager deal is scheduled for Tuesday, January 10, in the U.S. Bankruptcy Court in New York. That should give the judge plenty of time in which to read the assorted objections and (possibly) do his/her own research on the troubling questions asked within.

Binance: too big to fail or too crooked to continue?

In December, Reuters reported that various factions within the DoJ were waffling on when to file multiple criminal charges against Binance. The exchange’s legal representatives reportedly warned the DoJ that while the ‘crypto’ sector may have survived this ongoing death by a thousand cuts, charging Binance/CZ would be a razor to the jugular that crypto wouldn’t be able to withstand.

This ‘too big to fail’ argument got a boost in Arcane Research’s 2022 report, which detailed the dominance that Binance held at year’s end. The elimination of transaction fees on BTC spot trades pushed Binance’s share of that global market from 45% at the start of 2022 to 92% by December 31.

Arcane put this increase into blunt context: “We have to go all the way back to Mt. Gox’s heydays to find a period where a single exchange dominated BTC spot market volume in a similar manner.” Similarly, Binance’s BTC Futures/Perpetual volume rose 14 points to 61%, while ‘Crypto Perps’ volume gained 10 points to 66%. “In terms of trading activity, Binance is the crypto market.”

It’s worth remembering that the fiat value of BTC was essentially halved following Mt Gox’s 2014 suspension of trading following a ‘hack’ that was ultimately revealed as an internal theft of customer tokens. Like the recent shenanigans at FTX, 3AC, and the rest of 2022’s rogues’ gallery, it seems very little has changed over the last eight years.

Recall that FTX’s willingness to outbid Binance in the first auction was based on FTX’s desire to use Voyager customers’ assets to plug the holes on Alameda’s balance sheet. CZ’s protestations to the contrary, suspicion is rife that Binance is anxious to do likewise, particularly given the six months/$1 billion worth of breathing space the acquisition would offer Binance while it pretended to pursue those four U.S. licenses.

And don’t rule out the likelihood that the FTX execs currently spilling their guts to the feds—now including FTX/Alameda’s former attorney and online poker scandal-eraser Daniel Friedberg, according to Reuters—will have plenty to say regarding Binance and CZ, who until last year had a one-fifth stake in FTX.

Finally, in what could become prime comedic fodder, once all Binance’s REKT customers stop crying, Binance apparently decided against trademarking CZ’s infamous ‘SAFU’ mantra. While CZ’s Twitter feed continues to use a #SAFU hashtag to promote the alleged safety of customer funds on his exchange, a SAFU trademark application from 2019 is currently listed as “Abandoned.” #FUKD?

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.

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