What Is Merit Peak Limited? CZ-Controlled Company Received Billions of Binance Customer Funds
Will there be a true crypto exodus? | Credit: Shutterstock
Key Takeaways
- CZ transfers $11 billion in customer funds through Merit Peak.
- Merit Peak, among other entities involved, is owned by CZ.
- There’s virtually no information on Merit Peak.
An offshore trading company under the name of Merit Peak LTD has received $11 billion from a Seychelles-based firm used to deposit Binance customer funds. Merit Peak is owned by Binance founder and CEO, Changpeng Zhao. However, Merit Peak has no registered headquarters or business website.
Foul Play
On June 5, the Securities and Exchange Commission (SEC) has filed several lawsuits against Binance and its founder, Changpeng Zhao (CZ). Among the most prominent claims is that Binance and CZ transferred client deposit funds into accounts used for corporate purposes.
The SEC now claims that Merit Peak, an offshore trading company controlled by CZ has received $11 billion in customer funds through a Seychelles-based firm. Reports now allege that CZ and Binance are using these funds to boost the company’s profits.
Other complaints filed by the SEC against Binance and its founder include artificially inflating trading volumes to deceive investors, evading US regulators by transferring funds to overseas accounts, and wash trading. The SEC alleges that Binance facilitated repetitive selling and purchasing of the same cryptocurrencies by the same entities to inflate their prices.
More Captains On Deck
Reports also claim that CZ used a Switzerland-based trading firm under his control, called Sigma Chain to receive further customer funds. Moreover, reports claim that $11 million were withdrawn from Sigma Chain’s account to purchase a yacht.
On top of that, the SEC claims that a company acquired by Changpeng Zhao in 2020, called Swipewallet transferred $1.5 billion in offshore wire transfers in 2022. Allegations say that US dollars are first converted into foreign currencies before the transfers. Swipewallet is a digital wallet and debit card platform. However, the company’s social media platforms have been inactive for the past year.
The series of lawsuits the SEC filed against Binance, naming it “a web of deception” which involves a long list of corporate and individual entities. Among the most prominent names on the list is Guaying Chen, head of Sigma Chain. Sources claim that between January and March 2023, several Binance accounts transferred a total of $162 million to Sigma Chain.
Finally, Binance corporate messages show that Chen was put in charge of Binance US finances by placing her as the Primary Admin User of the concerned bank accounts, which are held in Silvergate Bank. The assignment enables Chen to withdraw funds from and deposit funds to 5 bank accounts:
- A customer deposit account.
- A corporate client account that later transferred funds to Merit Peak.
- Three other bank accounts.
Consequences For Binance & CZ
In recent news, the SEC has requested the federal government to freeze all funds owned by Binance US, citing the need for a guarantee that CZ & co won’t try to destroy any evidence. Moreover, a crypto legal expert, John Deaton speculated that the DOJ is preparing to file criminal charges against Binance and founder CZ for defrauding US regulators.
So far, key cryptocurrencies such as Bitcoin and Binance’s own token, BNB have dropped significantly in value following the news of the lawsuits against both Binance and its main competitor, Coinbase. Trades have also slowed down on both platforms with shares in the market taking severe plunges.
Merit Peak Named in FinCEN Consent Order, CZ Resigns
Since then, Binance and its founder have admitted serious wrongdoing and plead guilty to money laundering charges. Changpeng “CZ” Zhao has since stepped down from Binance, and is due to reappear in the U.S for sentencing in February. However, Merit Peak has subsequently been named in a consent order between Binance and the Financial Crimes Enforcement Network (FinCEN).
According to the consent order covering conduct between July 2017 and July 2023, Merit Peak acted as Binance’s OTC trading desk, filling large cryptocurrency trade orders for Binance.com users that could not be filled on Binance’s central order book exchange. The consent order states that Merit Peak relied on Binance’s U.S.-focused affiliate Binance.us for U.S. dollar liquidity and settlement services.
In the document, FinCEN alleges that Binance, operating as an unregistered money transmitter in the U.S., served over a million U.S. customers without complying with the mandatory registration with FinCEN. The company also fell short in implementing an effective anti-money laundering (AML) program, exhibiting significant deficiencies in areas such as know-your-customer practices, transaction monitoring, risk assessment, and reporting suspicious transactions.
Furthermore, Binance allegedly processed transactions linked to ransomware, terrorist financing, child exploitation material, Iranian sanctioned entities, and darknet markets without fulfilling the necessary filing of suspicious activity reports.
Moreover, the consent order alleges that Merit Peak worked with a major Binance trading firm based in the U.S., referred to as Customer A, to source large cryptocurrency trades that were ultimately settled through Customer A’s account on Binance.com. The activity outlined allegedly occurred between April 2019 and September 2021.
The consent order states that Merit Peak described itself in account opening documents to Customer A as a “proprietary trading firm with no client funds” that was “100% owned by [Binance CEO].”
Binance has agreed to pay $4.316 billion in total fines to resolve investigations by FinCEN, the Department of Justice, the Commodity Futures Trading Commission, and the Office of Foreign Assets Control. The consent order requires Binance to cease opening anonymous sub-accounts.
