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Binance routinely commingled customer funds with operating capital, according to the latest Reuters report on alleged malfeasance at the world's largest digital asset exchange.  The report claims that Binance violated U.S. financial rules regarding the strict separation of customer funds from company revenue in 2020 and 2021. This commingling reportedly occurred "almost daily" at accounts Binance held at the since-collapsed crypto-friendly Silvergate Bank in California. The extent of the commingling allegedly "ran into billions of dollars." https://www.reuters.com/investigates/special-report/crypto-binance-money/

"Forbes contributor and Wall Street veteran Caitlin Long has written a detailed explanation on this topic in a column. According to Long, rehypothecation and commingling will centralize risks associated with bitcoin and cryptocurrencies to exchanges, clearinghouses, and central derivatives counterparties. Centralized risk translates to greater vulnerability because this would offer hackers a single point-of-attack to cripple the cryptocurrency ecosystem."

A New York state appeals court ruled that Bitfinex must face claims by New York state that it hid the loss of commingled client and corporate funds. Companies connected to Bitfinex are accused by the New York Attorney General of hiding the loss of more than $800 million in client and corporate funds. Companies tied to Bitfinex also operate the stablecoin Tether, which serves as a conduit for trading in much of cryptocurrency market globally. The appeals court rejected the argument that Tether, with a market capitalization of more than $9 billion, is not a security or commodity, and said the court has jurisdiction over its issuer.

Bitfinex and Tether reached a $18.5 million settlement with the New York Attorney General (NYAG) over allegations that they hid the loss of commingled client and corporate funds and lied about Tether's USDT reserves. Within ninety days of the agreement effective date, and on a quarterly basis thereafter for two two years, the firms will be required to publish reports on the composition of Tether reserves. Without admitting or denying any wrongdoing, Tether committed to publicly share these reports. https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://tether.to/tether-and-bitfinex-reach-settlement-with-new-york-attorney-generals-office/

The U.S. Securities and Exchange Commission (SEC) is suing Kraken, one of the world's largest crypto exchanges, for illegally operating as a securities exchange without first registering with the regulator. In June, the SEC filed similar lawsuits against Binance and Coinbase, and both are defending against the regulator's claims, as will Kraken. Unique to the Kraken lawsuit are claims that it created a "significant risk" by commingling up to $33 billion in customer crypto with its own corporate assets, quoting Kraken's independent auditor. The SEC listed a number of crypto-assets it deemed to be unregistered securities, which the lawsuit alleges Kraken took a direct role in promoting to the investing public (ADA, AXS, ALGO, ATOM, CHZ, COTI, DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SO).

"Speaking in an interview with Bloomberg News, Gensler said he's concerned that crypto exchanges aren't putting up proper walls between different parts of their businesses such as custody, market-making, and offering a trading venue. He said the "commingling" of services may not be in clients' best interests.  "Crypto's got a lot of those challenges-- of platforms trading ahead of their customers," Gensler said. "In fact, they're trading against their customers often because they're market-marking against their customers." "