- New allegations emerge over Binance prioritizing profit over users.
- A high-rolling VIP client is at the center of the storm.
- The whistleblower claimed Binance management turned a blind eye to fraud.
Following last year’s bombshell charges and fines from US authorities over money laundering and sanctions violations, Binance was keen to move on and put the past behind them.
While many observers thought Binance was the victim of an overzealous regulators’ crackdown, emerging allegations from a former senior employee at the company are punching holes in that narrative.
Binance Under Fire
Emerging allegations published by the Wall Street Journal (WSJ) alleged that systemic fraud took place at Binance, based on the testimony of a former senior employee in the exchange’s market surveillance unit. The whistleblower, who was subsequently fired, claimed management turned a blind eye to manipulation and fraud by VIP clients.
Sponsored
DWF Labs, a crypto market maker and investment firm headed by Russian national Andrei Grachev, is the client at the center of the allegations. At Binance, traders with over $4 billion in monthly volume qualify for VIP status, unlocking discounted fees and access to dedicated account managers.
According to the fired investigator, DWF Labs allegedly used the Binance platform to artificially inflate trading volumes, manipulate token prices, and generate hundreds of millions in illegitimate profits through wash trading.
Market Manipulation
The alleged manipulative practices occurred with at least seven crypto tokens traded on Binance, including Yield Guild Games (YGG). In February 2023, DWF Labs invested $13.8 million in YGG to acquire around 35% of its token treasury.
Sponsored
Summer 2023 saw a 510% jump in YGG’s price over the week of August 7, 2023. The token subsequently crashed over 80% by August 17, 2023, fueling rumors of manipulation.
Binance’s internal investigators uncovered evidence that DWF Labs had engaged in fraudulent trading related to YGG and other tokens, violating the exchange’s terms of service. The investigative team submitted a report recommending that DWF Labs be de-platformed due to their findings.
However, the report allegedly faced fierce pushback from Binance’s department, which handled VIP accounts. This led to a separate internal probe into the investigators who raised red flags about the trading firm’s conduct in the first place.
Management Turns Blind Eye
The second internal probe stated that there was insufficient evidence that DWF Labs had intentionally engaged in market manipulation and that identified instances of washing trading could be coincidental, which alone did not constitute fraudulent actions.
The inquiry also raised concerns that the head investigator had collaborated too closely with a competing trading firm that originally flagged DWF to Binance. Ultimately, Binance’s leadership team rejected the recommendation to remove DWF Labs from the platform. Instead, the exchange fired the lead investigator who oversaw the DWF case. Several other investigators were subsequently let go, while others quit voluntarily.
Binance denied participating in manipulative trading and said it continuously improves its compliance operations.
Is Binance Dodgy?
Although the allegations relate to events before the Department of Justice’s charges became public late last year, the whistleblower’s claims still lighten the narrative that Binance was a victim of regulatory hostility.
Throughout Binance’s legal battle with US authorities, former CEO Changpeng Zhao (CZ) had insisted the exchange operated above board.
In his resignation tweet, CZ defiantly declared that his plea deal meant US authorities “do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation.”
On the Flipside
- Binance agreed to a $4.3 billion settlement and to leave the US market following DoJ charges.
- Current CEO Richard Teng stated that Binance‘s core values of protecting users and being a platform people love to use remain unchanged upon taking over from CZ.
Why This Matters
This case exposed crypto exchanges’ inherent conflicts between enforcing fair trading rules and maintaining lucrative relationships with high-volume traders. Crypto cryptics, such as SEC chair Gensler, will no doubt relish the whistleblower’s claims.
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