Binance Faces Scrutiny for Selling Claims at 50% Discount

Binance, a global crypto giant, is being accused of selling creditor claims at a steep discount, according to the South Korean news outlet Bloomingbit.

This controversial move has raised alarms among investors and regulators.

Binance Invites Regulatory Scrutiny Amid Gopax Deal

Binance acquired a significant stake in the South Korean cryptocurrency exchange Gopax, becoming its largest shareholder. Amid a financial crisis last year, Gopay, a cryptocurrency custody service operated by Gopax, suspended withdrawals, locking up about 70 billion won (~ $51.5 million).

Binance promised full compensation to the affected investors and bought Gopax shares at a reduced price. However, instead of compensating from its own funds, Binance sold the victims’ asset claims at less than half their value.

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This decision came just before a significant rise in crypto values, including Bitcoin (BTC). Consequently, the financial losses for the victims increased. The debt related to Gopay has now surged to about 100 billion won (~ $73.6 million), not counting the repaid amounts.

According to an insider familiar with the Binance-Gopax deal, Binance sold the asset claims of Genesis Global Capital last August. This sale aimed to fund the second tranche of compensation for Gopay investors. Genesis Global Capital played a crucial role in the financial operations tied to Gopay.

The strategy employed by Binance has left Gopax in a difficult position. The remaining 50% of the compensation for victims hinges on the completion of Gopax’s acquisition by Binance.

Meanwhile, in a contrasting scenario, the US-based Gemini exchange has started disbursing 97% of its tied-up funds following a US court’s approval of Genesis’ bankruptcy compensation plan.

Despite the unfolding events, Gopax has remained silent on the matter. The exchange has previously indicated that it used the Binance Industry Recovery Fund (IRI) for the initial compensation payments. However, the subsequent payments were financed by the proceeds from the asset claim sales.

During the 2022 crypto market crash, the former Binance CEO Changpeng Zhao announced the IRI to help projects that were otherwise strong but in a liquidity crisis. Nonetheless, South Korea’s Financial Services Commission (FSC) is now examining the documents related to Binance’s acquisition of Gopax.

Read more: Who Is Changpeng Zhao? A Deep Dive Into the Ex-CEO of Binance

“The executive change report under the Specific Financial Information Act is decided considering whether it can achieve objectives such as preventing money laundering, establishing legal order, and preventing illegal activities. We are looking into whether the transaction between Binance and Gopax meets these criteria,” an FSC official said.