Not so fast, the U.S. Department of Justice (DOJ) has just said to Binance.US. Just one day after its Trustee’s Office approved a plan for Binance’s U.S. subsidiary to acquire the assets and customers of Voyager Digital, the DOJ has stepped in to appeal the decision.
Bankrupt digital asset lender Voyager had a restructuring plan based on Binance paying US$20 million in cash, in return for its customer base and custody of their $1.3 billion in deposits. The Securities and Exchange Commission (SEC) and the New York Department of Financial Services had both opposed the deal, the latter alleging Voyager had operated an unlicensed and illegal virtual currency business in New York.
The SEC’s filing expressed concern the deal will violate unregistered sale of securities laws. It also claimed there wasn’t enough clarity over the relationship between Binance.US and its multinational parent Binance, and the deal did not contain information about whether third-party affiliates or foreign entities would have access to customers’ wallet keys. Binance’s multi-jurisdictional nature could make future regulatory actions impossible, the SEC said.
Trustee’s Office judge had just approved deal
Judge Michael Wiles from the Trustee’s Office (itself part of the DOJ) approved the deal after a four-day hearing. Voyager’s creditors had been without access to their investments and life savings for too long and deserved a resolution, he said.
Voyager Digital filed for Chapter 11 bankruptcy protection in July 2022. Its situation deteriorated in the wake of the Terra/Luna collapse earlier that year—Voyager had lent hundreds of millions of dollars to Three Arrows Capital (3AC), one of Terra’s largest investors. The bad luck continued after it received a US$200 million revolving credit line from Sam Bankman Fried’s Alameda Research, and later pursued a restructuring deal with FTX.
At the time, Bankman-Fried was quoted as saying the worst of the contagion was over, and several companies had reached out to him for support. FTX itself collapsed in even more spectacular fashion later that year, after details on the harsh reality of its (and Alameda’s) own holdings were leaked to the press. Bankman-Fried and other FTX executives are reportedly in a race to see who can avoid being made the scapegoat for the whole debacle, and potentially lengthy prison sentences.
Binance.US was next in line as a bidder for Voyager’s assets following FTX’s failure, but its plans immediately drew the ire of the SEC and four state regulators. The four—Hawaii, New York, Texas and Vermont, claimed Binance.US had not applied for the correct licenses to operate in their states.
The SEC expressed doubts over whether Binance.US actually had access to enough funds to consummate the Voyager deal. While Binance International is one of the world’s most active digital asset trading exchanges, Binance.US was a relatively small player in the U.S. market. This concern hints that Binance.US may not be as independent of its international namesake as it claims to be, which in turn could see deposits from Voyager’s U.S. investors falling under foreign control.
How ‘independent’ are local subsidiaries?
Binance and other large multinational digital asset exchanges have faced similar allegations over the years over the relationships between the head office (wherever that may be) and local subsidiaries sharing their names. According to some reports, Binance in particular has used this ambiguity as part of its business strategy.
Though local exchange subsidiaries claim to follow regulations in their own jurisdictions, the status of customer’s asset deposits is less clear. Digital assets can be moved between wallets far from the prying eyes of the regulated international banking system, and—as FTX’s situation exposed—can easily be sent between subsidiaries and head office. Or between exchanges and other businesses controlled by or friendly to the proprietor… or the proprietor’s own personal interests.
Last month, news reports revealed Binance had “secret access” to a Binance.US account at Silvergate Bank, and since 2020 had moved US$400 million to a company called Merit Peak, a trading firm managed by Binance founder and CEO Changpeng Zhao. Binance.US appeared to challenge the truth of those reports, calling it “outdated information.”
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 blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
