Is Binance Safe? DoJ Settlement Aims to Keep Exchange Going After Founder CZ’s Guilty Plea, Departure
Amid declining market share and ongoing legal troubles, is Binance really safe?
Key Takeaways
- As part of a $4.3B settlement with the Justice Department, Binance and founder CZ pleaded guilty to criminal charges.
- The exchange has gone into damage-control mode, seeking to reassure customers that their funds are safe.
- Binance said it wants to turn the page on its US compliance issues, but that plan is threatened by a looming SEC lawsuit.
Until Tuesday, November 21, Changpeng Zhao (CZ) was the face of Binance. Having so often defended the company he founded, facing criminal charges, Zhao ultimately chose to sacrifice control of Binance as part of a settlement agreement.
But will CZ’s departure be enough to save the embattled exchange? Post-settlement, Binance still faces major challenges. Falling back on a well-known catchphrase, Zhao insists that customers’ funds are “SAFU,” yet critics continue to doubt the platform’s ability to honor user balances.
Binance Attempts A Fresh Start
While CZ’s departure was one of the conditions of Binance’s settlement, it presents his successor Richard Teng with a unique opportunity to turn over a new leaf.
Although Binance will have to fork out $4.3B to resolve the Department of Justice’s (DoJ) charges, it seems prepared to take the hit.
Acknowledging its responsibility for various compliance violations, a Binance statement said the company now intends to turn the page on a “challenging yet transformative” chapter in its history.
Going forward, “we are confident that Binance will emerge as a stronger company as we lay the foundation for the next 50 years,” the statement added.
Attempting to prevent a run on customer deposits, Binance media channels have been doubling down on the “funds are SAFU” narrative, emphasizing that its guilty plea relates to historical compliance violations and that the DoJ didn’t allege Binance misappropriated funds.
However, while Binance may have appeased the DoJ and avoided a criminal trial, it still faces a civil lawsuit courtesy of the Securities and Exchange Commission (SEC).
SEC Complaint Still Looms
Having put the DoJ’s charges to rest, Binance has shown no indication that it intends to settle an ongoing dispute with the SEC.
Unlike the recent settlement, which could land CZ in prison, civil complaints can’t lead to lead to jail time. Any monetary damages are likely to be significantly lower too. So why did Binance and CZ agree to settle the DoJ case while simultaneously readying to battle the SEC in court?
In the former case, Binance was charged with violations of anti-money laundering and sanctions laws. Not great publicity, but the exchange appears to be banking on its customers not caring too much. Neither will it affect the firm’s ability to do business in the United States.
On the other hand, even if the resulting penalty is less severe, the SEC’s allegations could do much more damage to Binance’s reputation and commercial viability.
As in similar cases brought against Coinbase and Kraken, the crux of the SEC’s complaint is its claim that most cryptocurrencies are securities. Should courts side with the regulator, the consequences for American exchanges will be stark, significantly handicapping their ability to serve US customers.
Perhaps even more concerning for Binance, the SEC’s accusations of fraud threaten to undermine trust in the platform. Between charges of wash trading, intentionally misleading investors and commingling customer’s assets, the litigation presents a damning indictment of the exchange’s US operations.
Of all the allegations leveled against Binance, the claim that it commingled investor’s funds with its own is probably the most concerning for the platform.
Raising the specter of FTX’s Alameda back door, the SEC claims Binance sent billions of dollars worth of client assets to Merit Peak, an offshore trading company controlled by CZ. Given the work that Binance has put into convincing users that their funds are safe, a guilty verdict on such a charge could be catastrophic.
