Binance Investors Pull Out After SEC Discovers Involvement in FTX Scheme

Last week, the US SEC revealed the fraud charges filed against Binance and its founder, which caused investors to pull out crypto assets from Binance Exchange. The amount withdrawn from Binance Exchange amounted to $1.65 billion and about $13 million in Ethereum from the US Binance blockchain. The fraud charges were in relation to the collapse of the “Futures Exchange” (FTX) trading firm, after a class lawsuit was filed by investors in November 2022. It turned out that Binance founder Changpeng Zhao placed a 20% stake in FTX; approximately worth $100 million but partly using Binance funds.

Overview of FTX Scandal and Binance Founder’s Involvement

As a backgrounder, FTX was sued by investors on the grounds of false and misleading representations and deceptive conduct that was perpetuated by way of the so-called Ponzi Scheme.

The fraudulent scheme sold unregistered investment products in the form of futures exchanges. Although the FTS trading yielded inflows, money mostly came from funds infused by new FTX investors. FTX founders, a young entrepreneur named Sam Bankman-Fried and a former Google software engineer Gary Wang, were into the futures exchange business for only six months, when Binance founder Zhao purchased a 20% stake in the firm.

Based on a report by Nansen, a blockchain analytics firm, U.S. SEC regulators discovered that Binance founder Zhao, had been offering and selling the unregistered futures exchange products, while also using investor funds since Zhao had commingled Binance’s funds with his. Doing so had undermined the crypto exchange company’s internal controls; permitting Zhao to use investors’ crypto
However, although the inflows yielded by the FTX tradings amounted to $871.8 million for Binance and $11.53 million to Finance. The US SEC found out that Zhao got the lion’s share of said inflows. After the US SEC filed the fraud charges, it appeared that some of the inflows gained were used to return the FTX invested money in the accounts of affected Binance investors. Zhao on the other hand denied the fraud charges filed by SEC. Still, the Commodity Futures Trading Commission announced that it has already filed similar charges against the crypto exchange for non-compliance with regulations, particularly the practice of commingling business and personal funds.