Binance.US: Where Wash Trading Meets Trading Volume Inflation

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.

268. In fact, wash trading on the Binance.US Platform did occur and went undetected. Much of this wash trading occurred through numerous accounts affiliated with Sigma Chain, an entity owned and controlled by Zhao and operated by Binance employees at Zhao’s direction.

269. At Zhao’s insistence, Sigma Chain became a market maker on the Binance.US Platform from the time of its launch. Sigma Chain held dozens of user accounts through which it conducted wash trading that fraudulently inflated trading volumes on the Binance.US Platform.

270. Both BAM Trading and BAM Management were aware that Sigma Chain had dozens of accounts and was an active trader on the Binance.US Platform. On June 23, 2020, for example, in discussing a drop in trading volume from market makers on the Binance.US Platform, BAM CEO A asked the BAM Trading’s Sales Director to “pull [Sigma Chain’s] data to hold them accountable too . . . they should be consistent too – we can ask for more volume but they’ve been up to 50% for us before.” On January 6, 2021, the Sales Director messaged BAM CEO A and other BAM Trading employees “fyi these are ALL sigma chain,” and then listed 20 account numbers. Another BAM Trading employee responded, “whoa.”

271. Wash trading between Sigma Chain’s accounts occurred from the launch of the Binance.US Platform in 2019 through at least June 23, 2022. This wash trading activity corrupted the Binance.US Platform’s reported trading volume in a strategic pattern that coincided with at least three critical periods for crypto asset investors and the Equity Investors: (1) the Binance.US Platform’s launch in September 2019; (2) BAM Trading’s making available certain new crypto asset securities for trading on the Binance.US Platform; and (3) the months leading up to BAM Trading’s seed funding round starting in September 2021.

272. For example, on September 25, 2019, the day after the Binance.US Platform opened for trading, wash trading between Sigma Chain accounts and other accounts owned by Zhao and/or associated with Binance senior employees, constituted more than 99 percent of the initial hour of trading volume in at least one crypto asset. By the end of the day, wash trading by these accounts amounted to nearly 70 percent of that same crypto asset’s total volume.

273. Sigma Chain also engaged in wash trading on or around the time when BAM Trading made at least 65 new crypto assets, including crypto asset securities, available for trading on the Binance.US Platform. Between January 1, 2022 and June 23, 2022 alone, Sigma Chain accounts engaged in wash trading in 48 of 51 newly listed crypto assets.

274. For example, on April 6, 2022, the Binance.US Platform made the crypto asset security COTI available for trading. Shortly after COTI was available on the Binance.US Platform, Sigma Chain engaged in substantial wash trading in COTI. The following chart summarizes this activity over the ensuing 11 days, in which Sigma Chain represented as much as 35.52 percent of all COTI trading volume on the platform:

275. In addition, from June 4 through August 31, 2021—the three-month period leading up to BAM Trading’s and BAM Management’s offering of equity in BAM Management to the Equity Investors—Sigma Chain accounts repeatedly wash traded 51 crypto assets of the 58 crypto assets available for trading at that time on the Binance.US Platform.

276. Although they were aware of the high number of Sigma Chain and other Zhaoand Binance-related accounts on the Binance.US Platform, neither BAM Management nor BAM Trading took any steps to ensure that their statements about either trading volume or trading surveillance were accurate and complete or not otherwise materially misleading, including but not limited to implementing controls that would ensure Sigma Chain, other Binance-connected accounts, or any other customers were not engaging in wash trading on the Binance.US Platform. Instead, BAM Management and BAM Trading provided trading volume numbers to the investing public without qualification and without warning investors about the potential for manipulative trading given the lack of surveillance and monitoring over the platform’s trading.