How Reliable is Binance.US?

FACTS

VI. BAM TRADING AND BAM MANAGEMENT ENGAGED IN ACTS AND PRACTICES THAT OPERATED AS A FRAUD AND DECEIT UPON, AND MADE FALSE AND MISLEADING STATEMENTS TO, INVESTORS.

C. BAM Trading’s and BAM Management’s Statements Were Materially False and Misleading, and BAM Trading and BAM Management Engaged in Acts and Practices That Operated as a Fraud and Deceit Upon Purchasers.

259. BAM Trading’s and BAM Management’s statements described above were false and misleading, and they engaged in acts, practices, and courses of business that operated as a fraud and deceit upon the purchasers of crypto asset securities and the Equity Investors.

260. When the Binance.US Platform launched in September 2019, BAM Trading— contrary to its public statements—had no controls to monitor for and prevent manipulative trading on the Binance.US Platform, and through at least February 2022, it had implemented no such trade surveillance or controls.

261. Moreover, when BAM Trading and BAM Management reported trading volume without disclosing the extensive nature of the wash trading that they knew existed on the Binance.US Platform—as described below—they deceived investors into thinking that the trading volumes on the platform were robust, real, and reliable.

262. Senior BAM Trading officers and employees were on notice even before the platform’s launch that wash trading was possible. In August 2019, a Binance co-founder and head of the Binance team that managed the MatchBox trade matching engine used on Binance Platforms (“Binance Co-Founder”) messaged BAM CEO A and senior Binance executives that “the current matching engine allows a user to trade with themselves” asking that they “[p]lease make sure this is OK with whatever US/SEC regulations we have to follow.” He also noted, “The manipulation angle comes from the fact it will make the traded volume increase when funds did not in fact trade hands,” but that “this is mainly a compliance or regulation issue. If some US compliance or regulation says we must prevent this, we will. Otherwise we will not.”

263. Almost a year later, on or about July 16, 2020, “takeaways” from a meeting involving BAM Trading’s risk management and compliance included that “[m]arket manipulation controls have not been established,” and that they had sought more information from a Binance employee “who manages market surveillance.” That Binance employee later replied to a BAM Trading compliance employee that Binance had a team monitoring for market manipulation for the Binance Platforms, but the team did “not monitor for wash trading, front running and spoofing” on the Binance.US Platform.

264. Moreover, in January 2021, BAM Trading’s Director of Institutional Sales informed BAM CEO A that “[a]pparently we have nothing in place to prevent wash trading? Just tested myself, sold market order into my own bid.” He then warned that he was “not sure if this is being exploited on any level. The lower the fees for a [market maker], the easier it might be to manipulate the market.” Another BAM Trading employee responded, “Yikes.”

265. In fact, BAM Trading lacked any trade surveillance mechanisms until at least February 2022—six months after BAM Trading and BAM Management began approaching prospective Equity Investors with the Pitch Deck and more than three-and-a half years after the Binance.US Platform launched and stated publicly that it prohibited fraudulent trading. 266. Even though BAM Trading first retained Trade Surveillance Company A in late 2020, it was not until February 2022 at the earliest that BAM Trading could even begin using Trade Surveillance Company A’s surveillance software in any meaningful way because it was not until then that Binance personnel began providing relevant data in a usable format.

267. But even after February 2022, BAM Management and BAM Trading failed to provide Trade Surveillance Company A with account owner information that would enable it to detect trades between related accounts, thus preventing Trade Surveillance Company A from actually monitoring for certain manipulative trading, such as wash trading between related accounts (i.e., accounts bearing disparate account numbers that are, in fact, owned and/or controlled by the same entity or individual).

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