Binance.US's executives were concerned by the outflows from the Silvergate account to Merit Peak because the transfers were taking place without their knowledge, according to the messages reviewed by Reuters.
A spokesperson for the global Binance exchange, which did not respond to Reuters' questions for the article on Thursday, told crypto news outlet CoinDesk that the transfers were "a Binance.US issue." The activities of crypto platforms' market makers - firms that typically buy and sell assets at exchanges to deepen trading volumes - have come under growing scrutiny from U.S. financial regulators since the collapse of major exchange FTX in November. 'TREMENDOUS BURDEN' Zhao has not directly addressed the report, but on Friday he tweeted, "Remember 4.," tagging a previous post in which he listed his "Do's and Don'ts" for 2023. The fourth item on the list was "Ignore FUD, fake news, attacks," using an acronym for "fear, uncertainty and doubt" often used in crypto in relation to news perceived as negative. The day before Reuters' article, Binance's chief strategy officer, Patrick Hillmann, told the Wall Street Journal and Bloomberg that Binance expected to pay penalties to resolve U.S. investigations into the company. Hillmann said Binance had been built by software engineers unfamiliar with laws and rules on bribery and corruption, money laundering and economic sanctions, but earlier "gaps" in its regulatory compliance had since been closed. "It's a tremendous burden," Hillmann told Bloomberg. "We just want to put it behind us." Hillmann did not respond to detailed questions Reuters sent him for the article that was published on Thursday. Regulators are concerned that some market makers have received undisclosed special treatment from crypto exchanges that may disadvantage customers. The U.S. Securities and Exchange Commission accused FTX founder Sam Bankman-Fried in December of granting “special privileges” to his trading firm Alameda Research, allowing him to siphon off billions of dollars in FTX customer money. Bankman-Fried has pleaded not guilty. The bankruptcy in 2022 of a string of major crypto firms has also stoked calls from politicians for greater clarity on how regulators assess ties between U.S. banking and the cryptocurrency sector.
In December, U.S. Senators Elizabeth Warren and Tina Smith
wrote to top financial regulators including U.S. Federal Reserve
Chair Jerome Powell, asking about their assessment of the risks
to banks and the banking system stemming from exposure to
crypto. The letter cited Silvergate Capital Corp as among the
banks that "relied heavily on their crypto customers."
Shares in Silvergate Capital Corp , Silvergate Bank’s
parent company, fell sharply on the Reuters report, closing down
over 22%. They have lost nearly 90% of their value since hitting
an all-time high in November 2021.
(Reporting by Tom Wilson and Angus Berwick; Editing by Susan
Fenton)
