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Binance, Coinbase Among Six Crypto Firms Questioned by US Senator After FTX Mess

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U.S. Senator Ron Wyden, D-Ore., wrote in his letter to Binance, Bitfinex, Coinbase, Gemini, Kraken, and KuCoin, seeking answers from the six largest cryptocurrency exchanges on the risks consumers face when investing on their platforms, including whether the exchanges provide any protections for customers if the company fails.

“Unfortunately, consumers who entrusted their crypto assets to FTX have no such protections. As Congress considers much-needed regulations for the crypto industry, I will focus on the clear need for consumer protections along the lines of the assurances that have long existed for customers of banks, credit unions and securities brokers. If these protections had been in place before the failure of FTX, far fewer retail investors would be facing precipitous financial harm today.”  Wyden wrote in the letter.

Wyden requested answers to the following 13 questions by December 12, 2022 from each of the six exchanges:

1. How many subsidiary companies fall under Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin’s umbrella, and how many entities are otherwise affiliates of Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin?

       a) How does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin segregate assets bought or sold on its platform from its subsidiaries or affiliates?

2. Does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin segregate customer assets from corporate or institutional assets (including any assets of Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin's subsidiaries or affiliates)?

        a) If so, what safeguards are in place to ensure these assets are not commingled?

3. Does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin use customer funds for any purpose that is not disclosed to the customer? 

4. Please provide a list of any real estate acquisitions made by Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin or any of its executives or directors financed by customer funds.

5. Does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin have any policies, procedures, practices or safeguards in place to guard against suspected market manipulation or otherwise suspicious trading, including wash trading? If so, please describe.

6. Does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin, its directors, officers or employees, or any subsidiaries or affiliates use customer data to inform institutional or personal trading, including futures or options trading?

a) If so, to what extent does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin inform customers that it engages in trading that may disadvantage customers’ trades in favor of its own positions?

7. What is Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin's ratio of debt-to-assets and debt-to-equity (including capital)

        a) Do you consider Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin to be highly leveraged?

8. Please provide a copy of Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin’s most recent balance sheet with a full listing of the company’s assets and liabilities. Please clarify whether this document has been audited and whether Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin intends to make this document public.

9. How does  Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin hold and safeguard its reserves (with regard to both capital and equity), and will  the exchange publish proof-of-reserves?

        a) If so, will the proof-of-reserves be externally audited by a firm that follows the Financial Accounting Standards Board’s recommended methods for auditing crypto assets to the greatest extent possible? Please provide any such audits.

        b) What amount of Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin’s reserves, if any, is made up of exchange-issued tokens, or tokens issued by any of Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin’s affiliates or subsidiaries?

10. Has Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin had external auditors conduct annual audits of financial statements? If so, please provide the names of the entities that conducted the audits, and whether those entities ever alerted Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin of any financial irregularities over the course of its audits.

       a) Please describe any steps taken by Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin to address any potential financial irregularities, tax compliance issues or money laundering concerns identified by internal or external auditors, as well as whether Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin alerted any relevant regulators of these findings.

11. Does Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin carry any form of insurance that would benefit Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin’s customers in the event of its bankruptcy, theft or hack, or any other risks to customer funds? If so, please describe, including any limits to insurance coverage.

12. Would Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin participate in an industry-funded insurance fund, similar to the compensation fund established by SIPC?

13. What steps has Binance/Bitfinex/Coinbase/Gemini/Kraken/KuCoin taken to work with other companies in the crypto industry to develop protections for investors and customers? 

See the full letters to Binance, Bitfinex, Coinbase, Gemini, Kraken and KuCoin.

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