Binance Lawsuit Reveals Accounting Firm’s Concerns Over Commingling Funds

Cryptocurrency exchange courtroom drama, dark atmosphere, swirling mix of currencies and financial documents, storm brewing overhead with lightning, worried faces representing accounting firm's concerns, broken chains symbolizing loose regulations, looming shadow of SEC, eerie glow surrounding major players, mood of uncertainty and anticipation.

A recent court filing in the SEC’s lawsuit against Binance has brought to light that the exchange’s accounting firm, Armanino, had raised concerns over the company’s business practices years ago. One of the significant issues highlighted was the mixing of client and company funds in 2021.

As early as May 2022, Armanino had warned Binance that keeping client and customer funds in the same bank account could create potential regulatory issues in the future. The accounting firm strongly encouraged the exchange to fully segregate all customer assets from corporate assets as a best practice to avoid these complications.

Armanino’s concerns didn’t end there. The auditor discovered “significant deficiencies” across several of Binance’s divisions in 2019, including incorrect financial reporting and poor safeguarding of assets. The company also had insufficient custodian controls and faced data integrity issues. As a result, Armanino advised Binance to offer more transparency in its data collection process and provide better safeguards for accurately managing this data.

Looking at Binance’s safeguarding of assets, Armanino questioned the decision-making in regard to who had access to the company’s bank accounts. A non-executive-level employee, “Susan (from”, was found to be the approver for the company’s account, which raised concerns for the auditor. Armanino also recommended that Binance periodically inquire about and test the controls to ensure the custodian processes were reliable and functioning as intended.

However, it’s worth mentioning that Armanino stopped working with all crypto clients, including FTX.US and Kraken, in December 2022, following FTX’s bankruptcy and legal issues. This came after Armanino’s engagement with various crypto clients since 2014.

The SEC announced charges against Binance and its related companies, like Binance.US, BAM Trading, and BAM Management US Holdings earlier this week. These charges centered around allegations that the exchange commingled client assets with company funds, potentially violating US securities laws.

Although Armanino raised red flags and offered suggestions for Binance to improve its operations, it remains to be seen what implications this will have on the SEC’s case against the exchange. For the many crypto enthusiasts following this case, the outcome could serve as a critical precedent in determining the future course of regulatory oversight and business practices for cryptocurrency exchanges.

Source: Blockworks

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