Binance denies firing investigators who exposed market-maker’s manipulation

Binance reportedly fired internal investigators who flagged token price manipulation by a market-maker, poking more holes in the digital asset exchange’s claims of having learned the lessons of its non-compliant ways.

On May 9, the Wall Street Journal dropped a bombshell report that Binance had fired an internal investigation team late last year after they discovered the exchange had “neglected evidence of market manipulation and prioritized generating trading fees from large clients over fixing its practices.”

The alleged manipulation occurred at the hands of DWF Labs, a self-described “new generation Web3 investor and market maker” that founder Andrei Grachev launched in September 2022. DWF almost immediately raised eyebrows with its pitches to prospective clients that “algorithms can be skewed to prefer one side of the orderbook and that is used to drive price upwards.”

DWF generated at least $4 billion in monthly trading volume on Binance, elevating it into Binance’s ‘VIP 9’ status, a designation that offered reduced trading fees and access to ‘private relationship managers.’

Last year, Binance investigators claimed to have uncovered evidence that DWF had manipulated the price of the YGG token issued by Yield Guild Games, a decentralized autonomous organization (DAO) that sold around $10 million worth of YGG—one-quarter of its market cap at the time—to DWF. YGG pumped fivefold following Binance listing what the WSJ called a “highly leveraged derivative contract tied to the YGG token.”

Grachev promoted YGG on X/Twitter, saying the Binance Futures listing would bring “sustainability and power” to YGG. But YGG’s price collapsed shortly after the pump, in part due to DWF dumping nearly five million of its YGG tokens in two batches while the token was near its peak price.

Last September, Binance’s market surveillance team recommended DWF be removed from the exchange, citing data that DWF had manipulated the price of YGG and “at least six other tokens” via over $300 million worth of wash trades. Instead, the head of Binance’s VIP client management unit complained to senior leadership about the investigative team, resulting in Binance opening an investigation into its investigators.

This inquiry claimed to find insufficient evidence that DWF had manipulated anything and concluded that the wash trading data represented ‘accidental so-called self-trades.’ A week after the surveillance team submitted its original report, their team leader was sacked.

Other investigators were similarly shown the door over the following months, while the rest of the team apparently read the writing on the wall and pulled their own ejection levers. Binance claimed the purge was a ‘cost-saving’ measure.

In its response to the WSJ report, Binance claimed that “we do not tolerate market abuse,” citing its own stats of offboarding “nearly 355,000 users with a transaction volume of more than $2.5 trillion for violating our terms of use” over the past three years.

Binance then appeared to insinuate that its fired investigators had failed in their responsibility to “be neutral and look at the evidence without any bias, including bias that might come from market-making firms’ claims against their competitors.”

The identity of the market-makers who complained about DWF’s activities on Binance hasn’t been made public but execs from both Wintermute and GSR Markets tweeted criticism of DWF last year. (That said, Wintermute is hardly immune from criticism over its own practices.)

Binance co-founder Yi He tweeted a rebuttal of her own, sarcastically thanking the WSJ “for their consistent and long-term devotion to Binance, which has greatly increased our exposure and saved us a lot of marketing budget.” She added that “some mainstream media articles are increasingly driven by emotions and biases rather than facts,” but didn’t address the substance of the WSJ’s report.

DWF tweeted its own response that only obliquely referenced the WSJ report, saying, “many recent allegations reported in the press are unfounded and distort the facts.”

In a case of unfortunate timing, Binance CEO Richard Teng was just paraphrased by a Taiwanese media outlet saying he believes that “the company’s success depends on the strength of the team, so he places the best talents in the appropriate positions, constantly improves internal expertise.”

Teng was appointed CEO last November, after founder Changpeng ‘CZ’ Zhao stepped down as a condition of the exchange’s $4.3 billion settlement with U.S. federal authorities. That settlement came following years of Binance treating compliance as an afterthought and ultimately led to CZ being sentenced to four months in prison.

As part of that settlement, Binance was required to install independent transaction monitors to ensure the exchange was adequately policing illicit activity. The various U.S. federal agencies have yet to agree on who this monitor should be, but the WSJ report makes it clear that they need to get their asses in gear.

Ontari-no

In proof that it never rains but pours on Binance, the Canadian federal government’s financial watchdog FINTRAC imposed a C$6 million fine (US$4.4 million) against the exchange on May 9 “for non-compliance with Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations.”

Specifically, Binance Holdings Limited failed to (a) register with FINTRAC as a foreign money services business, and (b) report large virtual currency transactions of C$10,000 or more. The failings date from June 1, 2021 to July 19, 2023, during which Binance failed to report 5,902 transactions over C$10,000. Predictably, it wasn’t Binance who reported these failures; FINTRAC discovered them on its own through the use of blockchain analytics tools.

Binance never held a license to operate in Canada. The Ontario Securities Commission (OSC) repeatedly warned Binance not to offer certain products to consumers in Canada’s most populous province, only for Binance to (surprise!) feign compliance and continue doing whatever added most to its bottom line. In May 2023, Binance announced plans to completely ditch the Canadian market and allegedly did so that September.

But that hasn’t stopped the OSC from pursuing investigations into Binance’s activities. On April 30, the OSC dismissed a Binance application to revoke a summons issued by the regulator to determine the scope and scale of Binance’s unauthorized activities in the province—including how many Ontario-based accounts remain active on the exchange.

The Nigerian Nightmare (no, not Christian Okoye)

Meanwhile, there’s still the unresolved matter of the two Binance executives detained at the pleasure of Nigeria’s government. The brouhaha started in February when Binance was accused of facilitating the manipulation of the local naira currency via its peer-to-peer exchange. This resulted in Binance’s local operations being banned and the arrest of execs Tigran Gambaryan and Nadeem Anjarwalla.

Anjarwalla jumped bail but was detained in Kenya and is awaiting extradition to Nigeria. Gambaryan had been under house arrest, but Anjarwall’s flight convinced Nigerian authorities to put him in prison while his legal cases are pending. The two execs are the subject of two different lawsuits; one accusing Binance of money laundering, the other accusing Binance of dodging its local tax obligations.

On May 7, CEO Teng issued an update on Binance’s Nigerian woes in which he defended the exchange’s activities and made a public plea for the release of Gambaryan, a U.S. citizen.

But Teng raised eyebrows when he offered details of a January 8 meeting between Binance execs and government officials. Teng claimed that someone purporting to be an agent of Nigeria’s House Committee on Financial Crimes approached the Binance team following this meeting.

Said agent allegedly presented the Binance team with “a demand for a significant payment in cryptocurrency to be paid in secret within 48 hours to make these issues go away and that our decision was expected by the morning.” Teng said Binance “of course, declined the payment demand via our counsel, not viewing it to be a legitimate settlement offer.”

While Teng didn’t put a value on this allegedly ‘significant’ payment, the New York Times put the sum at $150 million. Rabiu Ibrahim, spokesperson for Nigeria’s Information Ministry, accused Teng of making “false allegations of bribery” in “an apparently well-coordinated public relations effort” that “lacks any iota of substance.”

The Nigerian government formally denied that any bribe offer was made in any amount. The government accused Binance of engaging in “a diversionary tactic and an attempted act of blackmail by a company desperate to obfuscate the grievous criminal charges it is facing in Nigeria.”

The government added that Binance “will not clear its name in Nigeria by resorting to fictional claims and mudslinging media campaigns. The only way to resolve its issues will be by submitting itself to unobstructed investigation and judicial due process.”

These sentiments are shared by the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), whose executive secretary Rume Ophi warned that local ‘crypto’ holders won’t stand for Binance “trying to make this government look bad and, in turn, create a negative ripple effect for crypto in the country.” Ophi urged Teng to reveal the name of the agent(s) who allegedly made this bribe so further investigation can reveal the truth.

Regardless of who’s calling the shots, Binance can’t seem to shake its criminal past. No matter how many billions they pay to rehabilitate their image, reports like the WSJ’s will continue to leak and confirm all the dirty deeds Binance still denies committing.

The net result of all this exposed dirty laundry will be the broader public continuing to view ‘crypto’ as an irredeemable gang of grifters and frauds who don’t care who gets hurt so long as they get paid. The sooner they and their kind are finally chased off this stage, the sooner those with more utility-focused blockchain ambitions can finally make themselves heard.

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