Binance allegedly sells Genesis claims at South Korean affiliate without consent: report

Binance secretly sold its South Korean affiliate Gopax’s user deposit claims in Genesis Global for less than half their face value last year, South Korean news outlet Hankyung reported Monday, citing a source familiar with the matter.

Last year, Binance became the largest shareholder of Gopax, one of South Korea’s top five cryptocurrency exchanges. In exchange for purchasing Gopax shares at a discount, Binance promised to fully restore investors' losses from Gopax’s crypto custody service, GOFi, which was exposed to Genesis Global Capital’s collapse in 2022. 

GOFi users collectively lost assets valued at 70 billion Korean won, or $57 million at the time. Gopax and Binance have so far compensated around half of the damages. 

The local report, citing the source familiar with the deal, said Binance initially promised to pay for GOFi-Genesis losses in full with its Industry Recovery Initiative (IRI), which was only used for the first round of payments worth 1.5 billion won.

The source alleged that Binance made the second round of repayments not through the IRI, but by selling GOFi user deposit claims at a heavily discounted value of less than 50% to a third party in August 2023. This transaction, which was not made with consent from investors, had been concealed by Binance and Gopax, the report said.

Earlier this month, a New York bankruptcy court approved a $2 billion settlement between Genesis and the state attorney general’s office, which would be used to return 77% of customer claims to creditors.

Gopax had not made any announcement concerning Genesis’ settlement, as it had already sold user claims at a “giveaway price,” the source told Hankyung. The claims would have increased in value with the recent surge in bitcoin prices during the bull cycle, resulting in more losses for GOFi investors had they not been sold, Hankyung reported.

The yet-to-be-paid remaining 50% of GOFi debt, originally valued at 35 billion won at the time of Genesis’ collapse, is now estimated to be valued at over 100 billion won per bitcoin's appreciation, the report said. Hankyung added that Binance’s deal with Gopax to repay its Genesis losses in full did not specify the exact timeline for the compensation.

Gopax did not immediately respond to The Block’s request for comment. Binance did not comment on The Block’s query on the matter and redirected the inquiry to Gopax.

Regulatory hardships

Since the acquisition, local South Korean authorities have repeatedly delayed approving Gopax’s transfer of ownership to Binance, reportedly due to concerns surrounding its legal issues in the U.S. 

Steve Kim, Binance’s Asia-Pacific business development director, said during a roundtable discussion in January that the global exchange is in early-stage talks to reduce its shares to become the second-largest shareholder, aiming to ease Gopax’s debts and compliance pressure. Binance CEO Richard Teng visited Seoul in March to meet financial regulators, local media reported.

UPDATE (2:50 a.m. ET, May 29): Gopax published a statement Wednesday, stating that the sell-off of GOFi user claims in Genesis in August 2023 was approved by its board of directors. “It is not true that one certain shareholder has sold the users' asset claims,” Gopax wrote, rebutting the report that Binance made the decision to sell.