Binance CEO Accused Of Wash Trading Scandal
The Wall Street Journal (WSJ) has alleged Binance’s CEO Changpeng Zhao’s of involvement in wash trading during the launch of the American branch, BinanceUS. The investigation suggests that Zhao was aware of the deceptive practice and even “directed” it.
The U.S. outlawed wash trading in stocks and bonds a century ago. Now the practice is raising concerns as regulators look at crypto exchanges https://t.co/lSsPFxKo2L
— WSJ Markets (@WSJmarkets) July 24, 2023
Wash Trading Allegations
During the first hour of BinanceUS’s launch, approximately $70,000 worth of Bitcoin (BTC) was traded. WSJ gained access to internal communication, where Zhao purportedly admitted that the volume did not solely come from external traders. Additionally, the report claims that the global Binance exchange engaged in wash trading for about 46% of its total volume.
Wash trading is a deceitful tactic used to inflate trading volumes artificially. This involves repeatedly buying and selling an asset to create the illusion of higher market activity. Its purpose is to manipulate market sentiment, attract more traders, and potentially drive up the asset’s price. However, such practices are illegal in regulated financial markets as they distort supply and demand dynamics and deceive investors. The report highlights that the U.S. Securities and Exchange Commission (SEC) alleged that 70% of the trading volume on BinanceUS was inflated by accounts linked to Sigma Chain, a Swiss trading company allegedly controlled by Zhao. Furthermore, the SEC claims that Zhao was aware of and directed these operations.
Binance CEO’s Involvement
BinanceUS and Zhao have denied the allegations, stating that they have never participated in or condoned wash trading. However, these accusations come amidst other regulatory issues, including lawsuits from the SEC and the U.S. Commodity Futures Trading Commission (CFTC). Binance is currently attempting to dismiss the CFTC lawsuit. In response to the WSJ’s revelations, Binance is reportedly facing a significant wave of layoffs. Changpeng Zhao has introduced a voluntary resignation option for employees, creating uncertainty about the reasons behind this decision. Employees across various departments are being given the choice to opt for voluntary termination.
The incident is reminiscent of a similar legal battle faced by Coinbase, a major U.S. cryptocurrency exchange. The CFTC accused Coinbase of engaging in wash trading for over six weeks in 2016. The dispute was eventually settled in 2021, with Coinbase paying a hefty $6.5 million fine.
