"An epic bank run seems inevitable."
It feels safe to say that John Reed Stark, a former attorney for the US Securities and Exchange Commission, is not a fan of the cryptocurrency firm Binance.
The crypto exchange — now the world's largest in terms of trading volume, as a direct result of former rival FTX's spectacular November collapse into bankruptcy — has faced mounting controversy in recent days as the result of a bombshell Forbes investigation alleging that Binance's "asset shuffling" is "eerily similar" to that of the now-defunct FTX.
Binance "moved $1.8 billion of collateral meant to back its customers' stablecoins, putting the assets to other undisclosed uses," according to Forbes. "They did this without informing their customers."
It's a serious allegation and one that Binance and its CEO, Changpeng "CZ" Zhao, have since denied.
"I am deeply disappointed that Forbes continues to write baseless articles," Zhao wrote in a Feb 28 Twitter thread, "losing their own credibility."
But Stark, among others, isn't buying it.
"My take is that Binance is a shadow bank," the attorney wrote in a scathing Monday tweet, "minting their own counterfeit currency while providing limit-order books/brokerage/custody/clearing/settlement/etc. with no US regulatory oversight or audit."
"It's FTX redux," he ominously added, "and an epic bank run seems inevitable."
My take is that Binance is a shadow bank, minting their own counterfeit currency while providing limit-order books/brokerage/custody/clearing/settlement/etc. with no US regulatory oversight or audit. It’s FTX redux and an epic bank run seems inevitable.https://t.co/ySMaG6kzQt
— John Reed Stark (@JohnReedStark) March 6, 2023
A bank run isn't entirely out of the question, considering that's exactly what happened to since-collapsed competitors Voyager Digital, Celsius, Gemini, and FTX, among others.
And given how many investors have assets in the firm, the impact of a Binance bank run would be, put mildly, devastating.
But that still-hypothetical scenario aside, Binance is facing very real trouble elsewhere: US Congress. Three US senators — Democrats Elizabeth Warren and Chris Van Hollen, along with Republican Roger Marshall — sent a bipartisan letter to Binance and its US subsidiary last week, demanding that the firms provide lawmakers with a copy of their records.
"Your companies' apparent attempts at evading the enforcement of anti-money laundering laws, securities laws, information reporting requirements, and other financial regulations cast serious doubt on the stability and legitimacy of Binance and its related entities and on your commitment to your customers," the senators wrote in the letter, which was sent after the Forbes report was published,
Unsurprisingly, Zhao maintains that it's all fake news.
"Unfortunately, a lot of misinformation has been spread about our company," the crypto leader told Forbes last week, "and we look forward to correcting the record."
READ MORE: Binance is FTX Redux, Bank Run Seems Inevitable: Ex-SEC Lawyer [Blockworks]