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Signature Bank, once the go-to bank of the crypto industry, finds itself in the spotlight again as it distances itself from Binance, while new allegations emerge of its collusion with FTX.
Binance has announced that it has suspended all USD bank transfers for customers outside the US, due to the withdrawal of Signature Bank.
This week, Binance said that users of Binance.com, its international arm, will no longer be able to deposit or withdraw USD by bank transfer until further notice.
In the meantime, users of Binance.US can still make USD deposits and withdrawals via a bank transfer.
Last month, Binance.com had informed users that Signature Bank would stop processing SWIFT-based transfers of less than $100,000 on February 1.
Speaking to CNBC this week, a spokesperson for Binance.com said “we are working hard to restart service as soon as possible”, and that it hopes to name a new banking partner in the “next couple weeks”.
The news comes after New York-based Signature Bank confirmed that it has begun withdrawing from crypto due to the “challenging environment” the sector is currently facing, particularly following the collapse of FTX, which was also a client of Signature Bank.
Signature Bank hit by class action
Staying with Signature Bank, this week a new class action lawsuit was filed against it in New York, alleging that it aided and abetted fraudulent activity that led to the FTX bankruptcy.
According to the complaint, Signature Bank had known about FTX’s fraudulent commingling of customer funds since at least June 2020, but continued to do business with it.
Had Signature Bank blown the whistle on FTX, the plaintiffs claim they would not have lost $300,000 during its collapse last November, when all withdrawals from the exchange were abruptly halted.
The lawsuit was filed by Statistica Capital, an algorithmic trading firm based in the British Virgin Islands, and Statistica Ltd., a related firm, both of which are involved in managing money for accredited investors.
The lawsuit seeks to recover losses caused by Signature Bank’s alleged “malfeasance”, both on behalf of the plaintiffs themselves and on behalf of other FTX customers who are “similarly situated”.
The FTX-Alameda divide
The key allegation made by Statistica is that Signature Bank knowingly and willingly transferred FTX customer deposits to Alameda Research, in contravention of FTX’s own Terms of Service.
Once those funds had been “misappropriated” by Alameda Research, they were then “embezzled” by FTX executives and used to make risky crypto trades for their own benefit.
In 2017, when Sam Bankman-Fried and Gary Wang co-founded Alameda Research, they opened “one or more accounts” for their new hedge fund at Signature Bank.
Two years later, in 2019, they launched FTX, but at the time it did not have the “requisite bank accounts to accept and hold customer funds”.
According to the complaint, this was due to the higher level of due diligence required to open a bank account for a crypto exchange versus a crypto hedge fund or other type of crypto company.
Consequently, to operate without its own bank accounts, FTX simply asked its customers to send their deposits to an Alameda bank account instead.
Once the funds arrived in Alameda’s accounts, an equivalent sum of “non-legal tender” e-money, created by FTX for this purpose, would be manually deposited into the customer’s FTX account and recorded on an internal FTX ledger.
“The obvious purpose of the e-money was for FTX to avoid the transfer of value from Alameda’s accounts to its own,” the complaint notes.
Statistica alleges that Alameda’s custody of FTX deposits was integral to the fraudulent business model of both companies.
Alameda acted as a “primary market maker” on the FTX exchange, for example, ensuring that FTX customers had an “always-willing” buyer or seller on the other side of their trades.
According to Statistica, this is how FTX’s trading volume was able to grow so rapidly. In 2020, FTX’s average daily trading volume was about $1bn, but by the end of 2021 this had risen to about $16bn.
In 2021, Statistica adds, FTX made a profit of $350m and Alameda of $1bn, with a staff of just 30 people.
Enter institutional investors
During the relevant period, from May 2019 to November 2022, the complaint alleges that FTX began soliciting deposits from high-net-worth and institutional clients.
These clients, which include Statistica, were asked to deposit to FTX through a Signature Bank payment system called Signet, a proprietary, blockchain-based payment system.
Signature Bank also boasted that it was the first bank covered by the Federal Deposit Insurance Corporation (FDIC) to launch a blockchain-based payment system.
However, as Statistica now claims in its complaint, there was no Signet account associated with any FTX entity. Instead, deposits intended for FTX were transferred to Alameda.
“Despite knowing of the fraud carried out through Alameda, FTX and related entities, at no point prior to FTX’s bankruptcy did Signature cease doing business with Alameda, FTX, or Bankman-Fried, nor did it suspend, close, or otherwise limit Alameda, FTX, and related entities’ bank accounts,” the complaint notes.
“Rather, seeing skyrocketing deposits, revenues, and profits from Alameda and FTX’s dominating performance in the crypto marketplace, Signature continued to take more deposits from FTX’s institutional customers and transfer them into Alameda-controlled accounts.”
Statistica has demanded that its claims, and claims of those similarly situated, be heard in a trial by jury. Signature Bank has yet to comment publicly on the case.
FTX wants its political donations back
Finally, this week FTX has published a statement calling on all political candidates and campaigns who received money from the company and its executives to pay it back.
The statement was published on behalf of FTX debtors, who have calculated that FTX and its executives collectively donated about $93m to political campaigns and causes.
The debtors have asked for the money to be returned voluntarily by the end of February so that it can be disbursed during bankruptcy proceedings. If it is not returned voluntarily, the debtors said they will use the power of the court to compel it.
