The Trouble isn't Over for Binance + Founder, CZ

Last week, Binance was fined $4.3 billion in agreements reached with the Justice Department, the Treasury Department, and the CFTC. Now, noticeably absent from that list of US regulators and departments that Binance was penalized by,  is the SEC, who sued Binance, Binance US, and CZ himself back in June of this year. So does this mean that there are more shoes to drop for Binance? Very possibly.

Let's talk more about it, but first I'd like to say thank you so much to our amazing sponsors Web3 Sense, Ledger and OpenSea. We'll be hearing from them a little later on in the show.

Alright, let's give a little backstory here. So, in late March of this year, the CFTC sued Binance and CZ for violating the Commodity Exchange Act. And they said this specifically. They said: "the defendants", so Binance and some other entities, allegedly "chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit,".

They also said, "the defendants", so again, we're talking about Binance, Binance entities, and CZ, "their own emails and chats reflect that Binance's compliance efforts have been a sham, and Binance deliberately chose over and over to place profits over following the law,".

So I covered this story back when it first dropped in March. And I was particularly interested in these chats that the CFTC referenced in this note. And there was one chat in particular, between Binance employees, that was interesting, an interesting way to conduct oneself as a professional.

So let's take a look at what I talked about in regards to these group chats back then. Somebody writes in the group chat, in all capital letters, "I HAZ", with a Z, like H-A-Z, "I HAZ NO CONFIDENCE IN OUR GEO-FENCING,". And, by the way, this is the person with the title Money Laundering Reporting. And they wrote in all caps, sticker chat, I has no confidence in our geo-fencing.

Like this entire industry is run by children.

So, in case you don't know geo-fencing mean, geo-fencing is basically a way for companies to keep people from certain jurisdictions from being able to access something on their website. So something like a Binance International, which is not supposed to accept money or allow customers from the US to use their platform, would implement geo-fencing to keep US citizens and US people from being able to access the Binance International platform.

So, when the Money Laundering Reporting Officer is saying, I don't have faith in our geo-fencing, it means I fully believe that US customers are accessing Binance International, even though that's not legal and they're not supposed to be doing that, and we're supposed to be preventing that.

So, of course, this is part of what they got in trouble for as part of this whole $4.3 billion fine that was levied against Binance last week. Basically, a big part of this was that the US government was saying, y'all knowingly broke the law by letting US individuals use your platform in a number of different ways. Yes, through not having good geo-fencing, through people using VPNs and encouraging, essentially, people to use VPNs, and also through white glove service where they basically had one-on-one conversations with their biggest US customers to help them get around these laws, but also that by not really caring who was using the platform, they also allowed money laundering to happen on the platform, they allowed folks that had been sanctioned by the US and who are known criminals to use the platform, all of which is a violation of the Bank Secrecy Act here in the United States.

Now notably, that is all just about Binance International.

So Binance US was actually not named in this $4.3 billion fine and penalty and everything that you've been hearing about over the last week and a half. Binance US is distinct from that. But that doesn't mean Binance US hasn't been taking quite a beating since all of this went down. And you obviously have users pulling their assets off of Binance US as well as all of this has happened.

Now, yesterday, CZ announced that he would be resigning from the Binance US board, which...

...yeah, no kidding, clearly that needed to happen. I'm sure Binance US is desperate to distance themselves from CZ, their very controversial founder.

So, Binance US is still being sued by the SEC. And so this leads us to the heart of the story today, which is this piece that I feel like has been overlooked by a number of folks in the media. I've heard some people say that, what Binance has been charged with is very different from and distinct from what happened with FTX.

"Now, to be clear, the charges laid against Binance and CZ are very different from what SBF faced,".

And, while on the one hand that's sort of true in the sense that what this $4.3 billion fine was addressing, was quite different than what SPF and FTX were charged with, it's not entirely true because what the SEC has charged Binance, Binance US, and CZ with, actually are quite similar to what we saw with FTX.

Specifically in this SEC suit, which was filed back in June, the SEC says that CZ had a backdoor to customer deposits within Binance and that he was misappropriating those, which is basically one for one what FTX was doing.

Here's what the New York Times said about this. They said in its lawsuit against Binance, the SEC said that the firm transferred billions of dollars in customer funds to a separate company, Merit Peak Limited, which was controlled by Mr. Zao, Mr. Zao, of course, being CZ.

Now, the SEC has not proven this case yet, and it's actually not even clear that they definitely will. There was a status hearing about all of this on Monday, and Binance US's attorneys asked the judge in this case to put an end to the SEC's investigation altogether. They said the SEC doesn't have any proof of what they're alleging here, and interestingly enough it seemed like the judge was somewhat sympathetic to this.

Now this Judge Faruqui, I'm going to pronounce it Faruqui, a Judge Faruquiwho has been presiding over this case so far, said that the guilty pleas by Binance and by CZ, that we saw last week that led to this $4.3 billion fine, that that makes it less likely that CZ can now or would now misuse any US customer assets.

So specifically, Judge Faruqui said, "At some point, I have to make a leap of faith and say enough is enough," and he said that apparently to the SEC's lawyers. Binance US's attorneys also said at this hearing on Monday that Binance US has lost almost half of its monthly users since the SEC filed its case, which I'm sure is partly to do with the SEC filing this case and partly to do with the fact that everybody has lost faith in centralized crypto exchanges, for very good reason.

And the judge ended the day by saying that the two sides, so the SEC and Binance US, need to try and resolve their evidentiary disputes. So basically they're fighting over evidence and what could be admitted and blah, blah, blah, that they need to try and resolve that as quickly as possible and to give him an update on December 15th.

So, more will be revealed here. Personally, I imagine that CZ probably did misappropriate funds at times and absolutely skirted the lines since we know for a fact that he has no problem skirting lines and crossing lines for that matter, but he didn't misappropriate them to the degree that FTX did. He didn't blow them all, and so he's been able to kind of get away with it or cover it up. But who knows?

Again, Innocent until proven guilty, it just seems like we all know that CZ has no problem crossing lines.

Now CZ is currently stuck, quote unquote, in the United States. It was expected or he was supposed to go back to the United Arab Emirates after the fine was levied last week, but a judge just two days ago basically said that he needed to stay in the United States until courts decided whether or not he had to stay here through his sentencing hearing, which will be in February.

So the chance CZ has to stay in the States until he's sentenced in February, he of course also had to pay personally a $50 million fine in connection with his and Binance's guilty plea last week.

All right, folks, that is our show for today. Thank you so much for being here. I really appreciate it. If you did enjoy this episode, please consider subscribing to the channel on the podcast side or on YouTube. Comment, tweet at me. I really love hearing from y'all. And with that, I'll see you next week.

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