- Binance fired the head of its market surveillance team after he reported manipulative trading by DWF Labs.
- Activities such as pump-and-dump and wash trading by DWF Labs violated Binance’s terms, potentially leading to legal consequences.
- Binance denies tolerating market manipulation, claiming a robust surveillance system that actively removes violators.
Recent events have thrown Binance under more scrutiny, questioning its commitment to fair trading. A storm has erupted around the exchange with allegations of ignoring its own rules against market manipulation.
Disturbing Revelations
The Wall Street Journal has reported that Binance sacked the head of its market surveillance team after he flagged questionable activities by DWF Labs. These activities, including pump-and-dump and wash trading, are clear violations of Binance’s own guidelines and could lead to serious legal issues in traditional markets.
The fired leader and his colleagues from the traditional finance world tried to elevate Binance’s standards to meet regulatory norms. They found that some VIP clients were involved in shady deals that threatened the integrity of the platform.
In a response to these accusations, Binance made a post on Twitter, denying any leniency for such practices on their platform. Moreover, Binance claims it has removed nearly 355,000 users in the past three years, handling transactions worth over $2.5 trillion, for breaking its terms.
“These are not decisions we take lightly. We conduct thorough investigations using multiple tools, and only offboard clients when there is sufficient evidence they have violated our terms of use,” Binance added.
Yi He, co-founder of Binance, also responded to the swirling controversy, highlighting the exchange’s vigilance in monitoring market makers (MM). She emphasized Binance’s strictness in overseeing market activities, clarifying that they do not specifically target any fund.
She also addressed the competitive nature of market makers, acknowledging that the competition can involve unethical tactics and that certain entities might engage in manipulative public relations, but firmly stated her stance against such involvement.
Ongoing Legal Struggles
This issue is part of Binance’s broader regulatory challenges. In late 2023, US regulators criticized the platform for prioritizing profits over user protection. As a result, Binance agreed to pay a hefty $4.3 billion fine for violating anti-money-laundering standards.
Adding to the trouble, Binance’s founder, Changpeng Zhao, was recently sentenced to four months in jail. This incident highlights the ongoing legal troubles at Binance, which also faces additional civil charges from the US Securities and Exchange Commission (SEC). They allege that Binance misled US investors about its risk controls and trading practices.
The WSJ report, based on deep internal investigations and reviews of key company documents and emails, indicates that even though the surveillance team played a critical role in regulatory compliance, their suggestions were often overlooked if they conflicted with the interests of significant clients.
Despite improvements in their monitoring tools to detect and prevent manipulative trading practices, the firing of this key employee casts doubts on Binance’s commitment to transparency and fairness.
According to WSJ, Binance depends heavily on VIP customers, who make up two-thirds of the total trading volume. The monitoring team had recommended action against the Tron Foundation last summer, and also suggested removing DWF. However, the head of Binance VIP objected. The compliance department felt there was insufficient evidence, and they believed the surveillance team leader was too close to DWF’s competitors, leading to his dismissal.
Investigations by Binance found that DWF had manipulated the price of YGG and at least six other tokens, engaging in over $300 million of wash trading in 2023. DWF also sold nearly 5 million tokens in two batches at the market peak.
Binance contended that the transactions flagged by the monitoring team were legitimate proprietary trades and did not constitute manipulation. The company also suspected that the head of the monitoring team had collaborated too closely with competitors of DWF, leading to accusations of fraud.
These events paint a troubling picture of Binance’s approach to handling insider market manipulation. The company’s actions and statements following these findings continue to stir debate and concern among traders and investors alike.
Disclaimer: The information provided is not trading advice.
