In a recent tweet, John Reed Stark, a former lawyer in the SEC Enforcement Division, expressed grave concerns about the future of Binance. With 18 years of experience in spotting red flags, Stark highlighted several alarming issues surrounding the popular cryptocurrency exchange.
As an expert in securities enforcement, Stark’s opinion carries weight and raises questions about the reliability and trustworthiness of Binance.
Binance’s Lack of Reliable Information & Audits
One of the major red flags Stark pointed out is the lack of reliable and trustworthy information about the exchange. He mentioned several concerning aspects, including a CFTC action that alleged massive regulatory violations and accusations of commingling customer funds.
Furthermore, the exchange has never provided audited financial statements or proof of reserves. The sudden departure of its auditor and the mystery surrounding the exchange’s headquarters location only adds to the skepticism.
Stark emphasized the importance of audited financial statements for understanding a company’s financial condition. However, the exchange’s so-called “proof-of-reserves” audit, which they touted as evidence of financial stability, falls short.
The PCAOB, the organization overseeing auditing standards in the US, has stated that these audits should not be relied upon due to their limitations. Such audits fail to address liabilities, asset usage, or the effectiveness of internal controls, rendering them inadequate.
Using an analogy, Stark highlighted the stark difference between bona-fide and proof-of-reserves audits.
While a legitimate audit involves an exhaustive review of a company’s financials and operations, its scheme merely offers a snapshot of assets at a specific moment. This approach lacks the thoroughness and reliability required for proper financial scrutiny.
Stark identified the CFTC enforcement action against Binance as the most significant red flag. The allegations in the action included shocking and incriminating emails and texts. These exchanges revealed Binance’s willful evasion of US law and prioritizing profits over legal compliance.
The discovery of a VIP Handling Policy, which guided Binance personnel to troubleshoot for US customers, further demonstrated their efforts to evade regulations.
Stark also shed light on the issue of regulatory misappropriation within the crypto ecosystem. Cryptocurrency trading platforms often adopt regulatory labels such as “exchanges,” “brokers,” and “market-makers” to create a false sense of trust, oversight, and consumer protection.
However, these platforms lack the necessary qualifications and regulatory scrutiny associated with their traditional counterparts.
Given the close relationship between Binance and Binance.US and evidence of efforts to circumvent US regulations and serve US clients, Stark warned that more civil and criminal prosecutions against Binance are likely imminent. Given these concerns, he advised Binance users to withdraw funds and seek alternative platforms.
Nevertheless, as Stark’s opinion reverberates within the cryptocurrency community, it remains to be seen how Binance will address these red flags and regain trust in the eyes of investors and regulators.
Related Reading | Bitcoin Long-Term Holders Show Confidence During Market Volatility