The US Securities and Exchange Commission (SEC) is investigating the ties of Binance US, the American affiliate of the similarly-named global crypto exchange, with two of its affiliate market makers, The Wall Street Journal reported on Tuesday.

Sigma Chain AG and Merit Peak Ltd. are the companies in question that have traded cryptocurrencies on the US arm of Binance as market makers since 2019, shortly after the establishment of the exchange.

Market makers maintain liquidity in the trading market by continuously buying and selling assets, making money from bid-ask spreads. Sometimes, they can have an unfair advantage over regular traders, especially in unregulated markets of cryptocurrencies.

Illicit Ties?

The SEC is primarily looking into the relations of Binance’s CEO Changpeng Zhao, who is the largest shareholder in Binance US, and the two market makers, Sigma Chain AG and Merit Peak Ltd. Corporate documents from 2019 show that Zhao controls both the market-making entities and that can create a conflict of interest.

Further, there are concerns that Binance US did not properly disclose its ties with the two market makers to its customers. Indeed, the Binance US website does not name any of its market maker partners on its website. The regulator is now seeking information about the two market-making companies from Binance US for an enforcement probe.

However, Binance declined to furnish any details officially, saying that it is a privately held company and is not obliged to disclose details of its investors or corporate structure to the public. But, it is open to sharing information with regulators, according to a Binance spokesperson.

The SEC first subpoenaed the US arm of Binance in late 2020, seeking information about the stakeholders, business model and other disclosure-related information.

But, the lack of proper regulation of cryptocurrencies makes it harder to properly investigate crypto exchanges and their affiliates. To proceed with the probe, the SEC needs to first prove that some of the digital assets offered by Binance US fall under the category of securities and come under its jurisdiction.

The US Securities and Exchange Commission (SEC) is investigating the ties of Binance US, the American affiliate of the similarly-named global crypto exchange, with two of its affiliate market makers, The Wall Street Journal reported on Tuesday.

Sigma Chain AG and Merit Peak Ltd. are the companies in question that have traded cryptocurrencies on the US arm of Binance as market makers since 2019, shortly after the establishment of the exchange.

Market makers maintain liquidity in the trading market by continuously buying and selling assets, making money from bid-ask spreads. Sometimes, they can have an unfair advantage over regular traders, especially in unregulated markets of cryptocurrencies.

Illicit Ties?

The SEC is primarily looking into the relations of Binance’s CEO Changpeng Zhao, who is the largest shareholder in Binance US, and the two market makers, Sigma Chain AG and Merit Peak Ltd. Corporate documents from 2019 show that Zhao controls both the market-making entities and that can create a conflict of interest.

Further, there are concerns that Binance US did not properly disclose its ties with the two market makers to its customers. Indeed, the Binance US website does not name any of its market maker partners on its website. The regulator is now seeking information about the two market-making companies from Binance US for an enforcement probe.

However, Binance declined to furnish any details officially, saying that it is a privately held company and is not obliged to disclose details of its investors or corporate structure to the public. But, it is open to sharing information with regulators, according to a Binance spokesperson.

The SEC first subpoenaed the US arm of Binance in late 2020, seeking information about the stakeholders, business model and other disclosure-related information.

But, the lack of proper regulation of cryptocurrencies makes it harder to properly investigate crypto exchanges and their affiliates. To proceed with the probe, the SEC needs to first prove that some of the digital assets offered by Binance US fall under the category of securities and come under its jurisdiction.