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What is Binance and How is it Linked to Cryptocurrency and Investment Scams?

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A Reuters investigation has revealed that over $2 billion of illegally obtained funds was processed by Binance between 2017 and 2021. Binance is also being sued by the United States Securities and Exchange Commission (SEC) for misleading investors and moving customer assets.

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What is Binance and who is behind it?

Binance is currently the world’s largest cryptocurrency exchange, with some sources saying it controls around half of all monthly crypto exchange volume. A crypto exchange is a virtual place to trade cryptocurrencies and the company makes money by charging a small fee for each transaction. You may think that its prominence in the world market would make it stable, with robust security measures, not a target for hackers and criminal activity.

The company’s founder and chief executive officer is Changpeng Zhao, a Chinese-Canadian coder based in Dubai, with a career history on Wall Street. His net worth is reportedly around $10.5 billion today, down from $65 billion last year.

Binance was founded in 2017, quickly rising to the top of the crypto exchange market. But it was never far from global regulatory scrutiny and, indeed, the United States Securities and Exchange Commission (SEC) has charged Binance and its chief executive with 13 offences, including allegations that the company misled investors, artificially inflated its trading volumes and secretly diverted customer assets to another company also owned by Mr Zhao.

In 2019 Binance.com was split so that it could trade as a separate entity, Binance.US, which offered fewer crypto and digital assets for investors in the United States. But the SEC claims this never really happened, and US-based customers were still able to trade in the full range of assets offered by Binance.com.

Binance sponsors the Italian football team Lazio and the Argentina national team. They also have a $500 million stake in Twitter. The company and Mr Zhao deny the SEC’s charges.

The recent Reuters investigation revealed a disturbing side to Binance. It was being used by criminals – without the company’s knowledge – to launder over $2 billion in illicit funds between 2017 and 2021.

The company says it had no idea who was using its exchange, as accounts could be set up anonymously with only an encrypted email address. It is believed that the $2.35 billion processed was made up of money stolen by hackers, obtained through investment fraud or received from illegal drug sales.

In one such case, a North Korean hacking group, Lazarus, stole over $5 million from a Slovakian cryptocurrency exchange called Eterbase and, within 9 minutes, had opened two accounts with Binance, traded the stolen funds and obscured the money trail. The money was untraceable and is yet to be recovered. In another instance, German police reported criminals using Binance to launder the proceeds of investment fraud schemes, where elderly and vulnerable people were conned out of around $800 million.

News of the SEC case against Binance saw the price of Bitcoin falling to its lowest point in months. The collapse of a rival cryptocurrency exchange, FTX, last year, caused the value of the currency to drop by around a quarter at that time. And with another set of charges announced by the SEC against Coinbase, the so-called ‘most respectable’ US-based crypto exchange, there is likely to be further instability in the cryptocurrency market.

That well-quoted expression, “the value of your investment may go down as well as up” has certainly been true for digital currencies, but a knee-jerk drop in Bitcoin value has usually been followed by a period of recovery, though this is little compensation for those who invested in the failed FTX, where around $7 billion is believed to have been lost when the company became illiquid.

Industry analysts are saying that the cryptocurrency industry will continue to trade as normal over the next few years, but there is likely to be strengthened regulation in the longer term and a reduction in the number of available cryptocurrencies.

Investment fraud and cryptocurrency scams usually incorporate a form of Authorised Push Payment (APP) fraud, where victims are persuaded to send money to scammers using telephone or online banking. As the payments are made almost immediately, the scammers are able to divert the funds to another account and the money becomes untraceable, often before the sender realises they have been conned. And as the account holder has authorised the payment, the bank often holds them responsible for their loss.

More and more unhappy customers have taken their cases to the Financial Ombudsman Service (FOS), the independent body established to arbitrate between financial businesses and their customers. FOS has ruled that banks have a duty of care to protect their customers from fraud.

We have listed a number of tips on how to avoid being scammed when researching, paying with or investing in cryptocurrency. We’d suggest you familiarise yourself with the different types of cryptocurrency scams and what you can do to try and recover your money.

Sarah Spruce, who heads up our Scam Claims Team says:

 “If you have asked your bank to investigate your case and they refuse to offer a refund, one option is to make a complaint to the Financial Ombudsman Service (FOS). Our team has many years of experience in financial claims and we understand the process, the time limits to be followed and the often complex legal arguments and defences the banks may raise.”

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We offer an assessment of your case and will decide on whether to pursue your claim. If we do take on your case, we work on a ‘no win, no fee’ basis, meaning you do not pay us anything if your claim is unsuccessful.

If you, a colleague, a friend, a relative or your business has been the victim of a cryptocurrency or investment scam, please get in touch. You can call us on 0800 169 5925, email info@tlwsolicitors.co.uk or complete one of the forms below.

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Meet Our Team

Meet Sarah, who heads up our experienced Authorised Push Payment Fraud Claims team.

Sarah and her colleagues are on hand to help with your claim.

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