A former Chief of the SEC Office of Internet Enforcement, John Reed Stark, said that feelers show that the US Department of Justice (DoJ) will file criminal charges against Binance if they have not already done that under seal.
Stark said that he is convinced that this is a likely scenario because the complaints by the SEC and CFTC against the company read more like criminal indictments, considering that they alleged that Binance was involved in fraud, deception, money laundering, and obstruction of justice.
A Binance-related criminal indictment
In a lengthy Twitter post that he made on June 11, Stark said that he is convinced that Binance will not escape with just a civil suit based on his experience.
“Having worked in the US SEC Enforcement Division for almost 20 years and managed many US SEC-DOJ joint prosecutions, in my humble opinion, there exists a litany of indicators that the US DOJ will file, or has already filed under seal, a Binance-related criminal indictment,” he said.
The purview of The Department of Justice
He said that the complaints from the SEC and CFTC intentionally did not focus intensely on money laundering because that is the purview of the US DoJ.
He highlighted that any act that disguises financial assets, enabling them to be used without detecting the illegal activities that produce such assets, can be considered money laundering.
A 76-page complaint filed by the CFTC against Binance, Changpeng Zhao, and three entities associated with it stated that the company violated CFTC statutes and regulations. Samuel Lim, Binance’s former Chief Compliance Officer, was also charged with aiding and abetting the violations.
Circumvention of regulations
The filings from the CFTC said that Lim lied to regulators and said that Binance complied with the regulations of the CFTC, but in an internal communication with a colleague, he admitted that it was a ruse. It further accused the Chief Compliance Officer of helping a customer circumvent the regulation, knowing that the client was potentially involved in illicit activities.
The CFTC filings alleged that Lim encouraged US-based VIP customers to circumvent detection through the use of proxy networks, adding that Lim and Zhao conducted certain activities outside the United States just to shield themselves from the law.
Willful evasion of federal law
In a March 23 CFTC press release titled, CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange,” the regulator alleged.
“The CFTC further alleges that Binance, Zhao, and Lim conducted certain activities outside the US designed to avoid CFTC regulation, such as instructing US customers as well as other customers as to how to evade Binance’s compliance controls.”
An extensive web of deception and conflicts of interest
Stark made reference to SEC allegations that Binance was co-mingling funds sent to a company controlled by Changpeng Zhao. He highlighted that this would form a part of the criminal charges that the DoJ may have filed against CZ and others involved in the dealings.
“Like the CFTC action, the SEC also alleges that Zhao designed, implemented, and engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
Stark believes that the SEC, which seeks emergency remedial actions against Binance, is convinced that they can persuade a judge that Binance committed fraud and that investors’ funds are at risk. The SEC has filed a motion to freeze the assets of BAM, a company controlled by Changpeng Zhao, and to have billions of dollars repatriated by the defendants.
Obstruction of Justice
Stark said that any filings by the DoJ against the Binance CEO and his associates would likely include obstruction of justice. He made reference to a CFTC release that said that Changpang Zhao instructed Lim to inform US-based VIP customers of any inquiries made about their dealings by the regulator.
“The CFTC alleged that, following instructions from Zhao, Lim created a policy that instructed employees working with VIP customers to promptly notify them of law enforcement inquiries concerning their accounts. Per one email: “VIP team is to contact the user through all available means (text, phone) to inform him/her that his account has been frozen or unfrozen. Do not directly tell the user to run, just tell them their account has been unfrozen and it was investigated by XXX. If the user is a big trader, or a smart one, he/she will get the hint,” the instructions allegedly read.”
A criminal charge imminent – Stark
John Reed Stark said that even the SEC has hinted at an ongoing criminal investigation in its memo, adding that the regulator is working with the FBI and prosecutors.
In his wrap-up, Stark said,
“My take is that the US DOJ is working with the SEC, CFTC, and multiple informants and whistleblowers, and the next axe to fall is the filing or unsealing of Binance-related criminal charges. Fail not at your peril.”
Preparing for criminal charges
In a related development, the Binance team has appointed a renown criminal defense lawyer, George Canellos, to its defense team. George Canellos is a former Chief of the Major Crimes Unit in the U.S. Attorney’s Office for the Southern District of New York, former head of the SEC’s New York Office, and former SEC Enforcement Division Co-Director.
Reacting to the inclusion of Canellos on the Binance defense team, Stark said that Binance is clearly preparing for criminal legal action from the Department of Justice. He described Canellos as remarkably qualified, “having served as both an SEC prosecutor and a DOJ prosecutor.”
Preparing for a criminal prosecution
“Binance is clearly preparing for a criminal prosecution and continuing to hire the best defense attorneys in the world. But I doubt even Ironman, Captain America and the Hulk could get Binance out from their current perilous legal quagmire.”
Some in the crypto industry believe that there is a coordinated attack on exchanges. What is left to be seen is if the US Department of Justice will open criminal proceedings in the Binance saga.