Changpeng Zhao Was Aware of Wash Trading on Binance.US

Changpeng Zhao Was Aware of Wash Trading on Binance.US

Time Stamp: July 25, 2023 2:53 AM
Source Node: 2783635

The US Securities and Exchange Commission (SEC) alleged Binance.US to have orchestrated wash trading in a lawsuit against the cryptocurrency exchange. Recently, a Wall Street Journal report revealed internal communications of the company, showing Binance’s Founder and CEO, Changpeng Zhao, was aware of the wash trading on the US arm.

“That was ourself, I think,” Zhao said in an internal message after the launch of Binance.US, which handled about $70,000 in trades in the first hour.

Wash trading is the practice of inflating the trading volumes of exchange by internally executing buy and sell orders. This creates a false impression of demand on the exchange, ensuring liquidity. Such practices are illegal, but many crypto exchanges, with little to no regulatory oversight, regularly inflate their trading volume. According to a study in the journal of Management Science, about 70 percent of the crypto trading volumes in the second half of 2019 came from wash trading.

In the lawsuit against Binance, its two US affiliates, and the CEO, Zhao, the SEC charged the exchange and other parties for wash trading on the US platform using dozens of user accounts that were held by Sigma Chain, a Swiss trading company controlled by Zhao.

Though the SEC did not specify any name of who might have conducted the wash trading, it highlighted that Zhao directed dozens of Binance employees to conduct Sigma Chain operations.

However, Binance denies the wash trading allegations.

“We strongly believe that the SEC’s allegations regarding wash trading are entirely unfounded, and based on a fundamental misunderstanding of the facts and a misapplication of the relevant law,” Binance’s spokesperson said.

Wash Trading in Crypto

Wash trading has been rampant in crypto. Apart from Binance, other popular crypto exchanges have faced allegations of such illegal practices. In 2021, the US Commodities Futures Trading Commission (CFTC) slapped Coinbase with a monetary penalty of $6.5 million for inaccurate reporting as well as wash trading on its institutional platform.

Meanwhile, Binance has been facing a severe regulatory backlash in the US and abroad. It shuttered its derivatives operations in Australia following an investigation by the regulator, while in Europe, it deregistered entities in Cyprus and the UK and exited The Netherlands. The exchange is facing a probe in France for illegal operations and anti-money laundering violations.

The US Securities and Exchange Commission (SEC) alleged Binance.US to have orchestrated wash trading in a lawsuit against the cryptocurrency exchange. Recently, a Wall Street Journal report revealed internal communications of the company, showing Binance’s Founder and CEO, Changpeng Zhao, was aware of the wash trading on the US arm.

“That was ourself, I think,” Zhao said in an internal message after the launch of Binance.US, which handled about $70,000 in trades in the first hour.

Wash trading is the practice of inflating the trading volumes of exchange by internally executing buy and sell orders. This creates a false impression of demand on the exchange, ensuring liquidity. Such practices are illegal, but many crypto exchanges, with little to no regulatory oversight, regularly inflate their trading volume. According to a study in the journal of Management Science, about 70 percent of the crypto trading volumes in the second half of 2019 came from wash trading.

In the lawsuit against Binance, its two US affiliates, and the CEO, Zhao, the SEC charged the exchange and other parties for wash trading on the US platform using dozens of user accounts that were held by Sigma Chain, a Swiss trading company controlled by Zhao.

Though the SEC did not specify any name of who might have conducted the wash trading, it highlighted that Zhao directed dozens of Binance employees to conduct Sigma Chain operations.

However, Binance denies the wash trading allegations.

“We strongly believe that the SEC’s allegations regarding wash trading are entirely unfounded, and based on a fundamental misunderstanding of the facts and a misapplication of the relevant law,” Binance’s spokesperson said.

Wash Trading in Crypto

Wash trading has been rampant in crypto. Apart from Binance, other popular crypto exchanges have faced allegations of such illegal practices. In 2021, the US Commodities Futures Trading Commission (CFTC) slapped Coinbase with a monetary penalty of $6.5 million for inaccurate reporting as well as wash trading on its institutional platform.

Meanwhile, Binance has been facing a severe regulatory backlash in the US and abroad. It shuttered its derivatives operations in Australia following an investigation by the regulator, while in Europe, it deregistered entities in Cyprus and the UK and exited The Netherlands. The exchange is facing a probe in France for illegal operations and anti-money laundering violations.

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