Texas officials are doubling down on their objection to a proposed deal between bankrupt crypto exchange Voyager Digital Ltd. and Binance.US, according to documents filed in New York bankruptcy court on Friday.
(Bloomberg) — Texas officials are doubling down on their objection to a proposed deal between bankrupt crypto exchange Voyager Digital Ltd. and Binance.US, according to documents filed in New York bankruptcy court on Friday.
In a follow up to an earlier objection, lawyers representing the Texas State Securities Board and the Texas Department of Banking cited “inadequate” disclosures around the Binance.US terms of use as an area of concern. It’s the latest in a string of protests from US-based regulators opposing Voyager’s plan to sell assets to Binance.US in a transaction previously valued at $1 billion.
“The independence of Binance.US from Binance.com is of the utmost importance to safeguarding consumers’ privacy and coin from improper uses,” the Texas legal team said in the filing. “While Binance.US, as Purchaser, purports to operate independently from Binance.com, the [terms of use] suggest otherwise.”
Binance and Binance.US didn’t immediately respond to requests for comment.
Binance.US launched in 2019 to serve US clients, while Binance Holdings is not authorized to transact with crypto customers in the country. Binance.US is operated by a California-based company called BAM Trading Services.
The two entities have long maintained that they are independent of each other save for certain branding licenses and shared technology agreements. Earlier this month, Reuters reported that Binance – which has declined to say where it has its global headquarters – had access to a bank account belonging to Binance.US.
During the first three months of 2021, the Reuters report alleged, citing documents, Binance.US transferred more than $400 million from that account to a trading firm controlled by Binance Chief Executive Officer Changpeng “CZ” Zhao called Merit Peak. In a statement released on Twitter after the publication of the Reuters story, Binance.US acknowledged that “while there was a market making firm named Merit Peak that operated on the Binance.US platform, it stopped all activity on the platform in 2021.”
The Texas filing highlighted sections of the Binance.US terms of use that “purport to explain the rights clients give to Binance.US and its ‘parents, subsidiaries, affiliates, entities under common ownership, or otherwise related parties.’”
According to the filing, those “related parties” identified in the terms of use “appear to include Binance.com, BAM Management Co., CPZ Holdings, and Zhao.”
An earlier objection filed in January by the Texas State Securities Board and the Texas Department of Banking highlighted concerns over the close connections of these companies, alleging that Zhao owns CPZ Holdings, which in turn owns Binance.US operator BAM Management. BAM Trading is a wholly-owned subsidiary of BAM Management, according to the terms of use published on the Binance.US website. “Based on this organizational structure, Zhao appears to be the indirect owner of both Binance.US and Binance.com,” the January filing said.
In the more recent objection, the Texas legal team alleged that these related parties “play key roles in the services provided by Binance.US and may even effectively permit Binance.com to act in the US even though Binance.com purportedly does not deal with US customers.”
Binance has faced increasing scrutiny from US regulators, and financial partners of the crypto exchange have been caught in the cross-hairs. Its banking partner Signature Bank in January pulled back from its dealings with the crypto exchange, and in February New York regulators banned Paxos Trust Co. from continuing to issue a widely-used Binance-branded stablecoin.
In response, Binance is said to be considering ending additional relationships with US business partners and is reviewing its venture capital investments. Binance Chief Strategy Officer Patrick Hillmann has acknowledged “gaps” in its regulatory compliance “that have since been closed,” Bloomberg reported earlier. Hillmann told Bloomberg the crypto exchange is in settlement discussions with US regulators.
–With assistance from Olga Kharif.
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