Binance senior execs bolt over CZ’s handling of US criminal probe

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Binance has lost several senior executives who were reportedly uneasy with founder Changpeng ‘CZ’ Zhao’s handling of a U.S. Department of Justice (DOJ) criminal probe.

On Thursday, Fortune reported that Binance’s general counsel Han Ng, ‘chief strategy (aka PR) officer Patrick Hillmann, and senior VP for compliance Steven Christie had all informed CZ of their plans to head for the exits. The troubled trio follow global investigations/intelligence chief Matthew Price and former marketing VP Steve Milton, both of whom recently flew the coop.

Fortune quoted a Binance source who said the execs were anxious about the DOJ’s ongoing probe of Binance’s operations, which has been underway for over a year. The DOJ was said to be preparing charges of unlicensed money transmission, money laundering conspiracy, and criminal sanctions violations against Binance while issuing subpoenas for U.S. hedge funds’ communications with Binance to help identify the exchange’s violations of the Bank Secrecy Act.

Last month, Binance and CZ hired several high-priced attorneys with vast experience in money laundering cases. The lawyers are ostensibly helping defend Binance/CZ against the civil charges filed by the U.S. Securities and Exchange Commission (SEC), but the assembled legal firepower suggests a far more serious threat is just over the horizon.

Following Fortune’s report, Hillmann tweeted confirmation of his exit but claimed that he was “doing so on good terms” and that after two years, “it’s simply time for me to move on to the next challenge.” Hillmann said he “continue[s] to respect and support” CZ and will “continue to cheer on my colleagues at Binance and support this industry.”

CZ responded to Hillmann’s tweet with a handshake emoji, then tweeted a complaint citing “FUD about some departures … the reasons dreamed up by the ‘news’ are completely wrong.” CZ claimed this mass C-suite exodus was simply “turnover” and that the media “exaggerate everything.”

Separately, Bloomberg reported that Ng’s general counsel role would be filled by Elanor Hughes, currently Binance’s head of legal for the APAC/MENA regions. Noah Perlman, the former Gemini exec who featured prominently in Sam Bankman-Fried’s ill-advised attempt to buy a struggling U.S. bank and who took over the rather pointless role of overseeing Binance’s compliance efforts in February, is for some reason staying put.

The charges filed by the SEC—and similar charges previously filed by the Commodity Futures Trading Commission (CFTC)—offer a detailed picture of the extent to which Binance’s senior staff conspired to violate U.S. banking laws and other regulatory requirements.

This opens up the distinct possibility that Binance’s remaining staff—as well as those who jumped ship at the last moment—could find themselves on the wrong end of Racketeer Influenced and Corrupt Organizations (RICO) charges, each of which carries a potential sentence of 20 years in federal prison.

Binance.US shrinkage

The ongoing regulatory brushback has helped push the U.S. market share of Binance’s struggling U.S.-facing Binance.US exchange from 22% in April to just 0.9% as of June 26. Citing figures from data firm Kaiko, Reuters reported that the Coinbase (NASDAQ: COIN) exchange has seen its U.S. market share rise nearly seven points to 55% last month as its Binance.US rival reeled from the deluge of bad press.

The main Binance.com exchange hasn’t been spared this shrinkage, as Kaiko reported its global market share has fallen to 52%, down eight points since the year began. While other exchanges have benefited from Binance’s woes, the overall market remains stagnant, with Q2 spot-based trading volumes hitting lows not seen since the pre-pandemic doldrums.

Binance released its latest ‘proof of reserves’ statement on July 1, which really isn’t proof of anything, but it’s worth noting what Binance is willing to admit publicly about the assets it claims to hold on behalf of its customers.

The exchange saw significant outflows of most major tokens in June, including BTC (-3.5%), ETH (-4.4%), and Tether (-9.45%), the latter the victim of Binance’s newfound love of rival stablecoinTUSD to provide the suds for wash trading. Seems few want to take the risk that their assets could wind up frozen in place once the DoJ finishes crossing the T’s on CZ’s indictment.

Gensler is the least of your worries

Binance is doing its best to push back against the onslaught of negativity, including by amplifying patently false claims regarding SEC chairman Gary Gensler.

This past weekend, a newly registered crypto ‘news’ site (which we won’t link to) posted an article bearing the incendiary headline: “SEC Sources Confirm Gary Gensler Resignation.” The report, which allegedly followed an internal investigation into Gensler’s crypto crackdown, sent ‘Crypto Twitter’ into an orgy of celebratory schadenfreude.

Except it was a hoax. The reportedly AI-generated article was swiftly dismissed by SEC officials, and the anti-SEC trolls went back to muttering in Reddit forums. But the ‘Binance Feed’ section of Binance.com promoted the alleged Gensler scoop well after the SEC debunked the claim.

Last month, Binance Feed similarly amplified an unverified tweet claiming that Gensler had taken out millions of dollars’ worth of short positions on the BTC token. This alleged self-interest was offered as a possible rationale for why Gensler has waged his crypto campaigns rather than the obvious need to purge the sector of its many grifters.

CZ participated in his latest ‘Ask Me Anything’ session this week, in which he said the SEC’s approval of applications for spot-based BTC exchange traded funds (ETF) by the likes of BlackRock would be “hugely beneficial to crypto.” (In CZ’s view, all developments, no matter how evidently problematic, are beneficial to crypto.)

Problem is, the SEC’s many previous rejections of spot-based ETF applications all cite similar justifications: the rampant fraud and manipulation of token prices on major international exchanges—including Binance, on which most BTC trades occur.

So, for BlackRock’s application to succeed, CZ and Binance have to go. Or at least open up their operations to the kind of oversight that would prevent CZ from engaging in the antics that allowed him to build his Potemkin crypto village. Either way, he loses. So expect him to go down swinging.

Down under chunder

Meanwhile, Bloomberg reported earlier this week that the Australian Securities and Investments Commission (ASIC) had conducted searches at Binance Australia’s offices. ASIC has declined to comment specifically on the report, which reportedly involves Binance’s recently shuttered derivatives business, although ASIC did say its review of Binance’s local operations was “ongoing.”

In April, ASIC cancelled the Australian financial services (AFS) license held by Binance subsidiary Oztures Trading Pty Ltd due to the company having incorrectly classified hundreds of Aussie customers as sufficiently qualified to trade derivatives on Binance.

In response, Binance chose to shut down Oztures, which was dormant when it was acquired by Binance—a favored modus operandi for Binance—to take advantage of Ozture’s existing AFS license.

Binance Australia’s mainstay exchange lost one of its primary local fiat on-ramps in May after Westpac bank announced plans to combat cryptocurrency-based scams by basically refusing to deal with exchanges. The nation’s largest financial institution, the Commonwealth Bank of Australia, followed suit in June.

Binance responded to Bloomberg’s report with its usual blather, saying it was “cooperating” with ASIC and remained “focused on meeting regulatory standards in order to serve our users in Australia in a fully compliant manner.”

By now, the weighty catalog of Binance’s compliance-avoidance efforts makes these types of statements hollower than a dollar-store chocolate Easter bunny. Just assume that, as you’re reading this, Binance Australia staff are out back of their offices frantically tossing hard drives into buckets of sulfuric acid.

Nowhere to run to, baby, nowhere to hide

Binance is increasingly unwelcome in a growing number of jurisdictions, having been ordered out of the Netherlands—customers are being steered toward Binance’s more compliant Dutch rival Coinmerce—and Belgium has issued similar GTFO orders.

France is probing Binance’s local operations for suspected ‘aggravated money laundering.’ Germany has denied Binance a custodial license. Binance has withdrawn its pursuit of a Cyprus license, and the exchange’s EUR-based fiat payment on-ramp is cutting ties with Binance in September.

Binance also fled Canada due to the country asking the exchange to obey the rules. An Ontario court recently denied Binance’s attempt to weasel out of an investigation by the province’s securities regulator, saying the exchange’s legal argument “does not have merit.” Typically, Binance is appealing the decision.

Oh, and Binance denied any connection to a Nigerian entity that somehow managed to operate with the company’s name but without the company’s knowledge until local regulators brought their hammer down.

‘Work from jail’ not an option

With all that going on—in addition to significant payroll purges—it’s hardly surprising that Binance’s rank-and-file staff are asking themselves ‘are we the baddies?’ A TrueUp happiness survey of 50 companies involved in the digital asset/Web3 space found Binance staff were among the least likely to be whistling while they work.

The data, which was reportedly gleaned from anonymous staff comments posted to corporate review site Glassdoor, paints Binance as a rather glum place. A Binance spokesperson told CoinTelegraph that the negative ranking was due to the fact that not all employees are “able to thrive in this unique, brutally fast environment.”

In its defense, Binance isn’t alone in having a breakroom that resembles the below-deck ‘row well and live’ scenes from Ben Hur. Rival exchanges Coinbase and Gemini also scored high on the unhappiness scale, possibly because their firms are dealing with their own SEC charges or losing billions of dollars’ worth of customers’ assets.

Binance will mark its sixth birthday on July 14 and is inviting customers to help celebrate through a variety of promotions, including a ‘Decorate Anything but a Cake’ contest. Hats off to anyone who manages to paint a Binance logo on a black-and-yellow hacksaw so CZ will have something with which to tackle the bars of his prison cell.

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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.