Binance hit with insider trading, market manipulation probe in US

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U.S. authorities are now investigating the embattled Binance digital currency exchange for potential insider trading and market manipulation, a new report has revealed. The authorities, led by the Commodity Futures Trading Commission (CFTC), are probing whether Binance or its staff profited by taking advantage of their users.

Binance is no stranger to regulatory issues. In fact, this year, close to a dozen countries have either ordered it to cease offering some of its services, like derivatives in Hong Kong, or stop operating in the country altogether, like the ban by the Financial Conduct Authority in the U.K. However, according to Bloomberg, the regulators are turning to the company itself and its executives, whom it believes may have been taking advantage of the users.

Bloomberg cited sources with knowledge on the matter who requested anonymity, who said that the CFTC is leading the probe and in recent weeks, it has been reaching out to potential witnesses. 

Binance processes millions of transactions, worth billions of dollars daily. Authorities are concerned that in doing so, its staffers may have taken advantage and exploited the customers, such as by trading on the clients’ orders before executing them.

The CFTC has also been going after the exchange’s data and communications that could give a clue as to whether it did try to sign up U.S. customers without getting an operating license. Binance has long denied this and claimed to have barred U.S. clients from its platform.

Inca Digital, a Washington-based digital currency analytics firm has proven that Binance is lying about blocking U.S. residents. As CoinGeek reported recently, Inca’s report showed that U.S. derivatives traders were still able to access Binance, as well as other platforms like Bitfinex and FTX, both of whom have had their integrity questioned.

On the insider trading accusations, Binance vehemently denied them and claimed to have zero tolerance for such conduct. It also said it maintains a “strict ethical code to prevent any misconduct that could hurt its customers or the crypto industry.” The exchange purportedly has a security team with long-standing guidelines for investigating wrongdoing and holding its staffers accountable, “with termination being the minimal repercussion.”

Changpeng Zhao, the controversial founder and CEO of Binance, also went into detail in July about how the exchange prevents insider trading. One of the methods is the isolation of the unit that lists new tokens from the rest of the operations, he said.

Bloomberg points out that the investigative team that’s probing Binance is the same one that worked on the case against BitMEX, yet another mega exchange that flouted financial laws at will. BitMEX ended up paying $100 million as settlement for its crimes, with its top executives still not out of trouble. One of them, Greg Dwyer, agreed to an extradition to the U.S. in the past week to face charges for his role in the breaching of U.S. banking laws.

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