Page 1 EXHIBIT A-83APage 2 HO-
Brooks, Brian - Vol.
I.20211213.365944-HQ
12/13/2021 11:21 AM
Full-size Transcript
Prepared by:
HO-Tuesday, June 06, 2023Page 3
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
In the Matter of:
)
)
BINANCE.US
File No. HO-13865-A
)
WITNESS:
Brian Brooks
PAGES:
1 through
PLACE:
Securities and Exchange Commission
100 F Street
Washington, D.C.
DATE:
N.E.
Monday, December 13,
The above-entitled matter came on for hearing,
via WebEx, pursuant to notice, at 11:21 a.m.
Diversified Reporting Services, Inc.
(202)467-
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Trading accounts?
A
Digital asset transfers to BAM Trading
accounts?
Q
The company's trading accounts.
A
I -- I can't recall that happening in the time
that I was there.
Q
Okay.
And was anyone at .com required to give
final signoff for digital asset transfers to third
parties?
A
I -- I'm not even sure I understand the
question.
engine, right, that has buyers and sellers, so third
party buyers and sellers would come and that was the
source of liquidity, so we, you know, we were not
filling orders for customers, we were matching customer
orders, so I don't -- I'm not sure I would even know how
to answer the question.
Q
I mean, BAM Trading operated a matching
So were sometimes BAM Trading paid for
services through digital assets?
A
So with only one caveat, I can't -- I can't
recall that ever happening during my tenure.
The one caveat is there was this group of
employees, basically the Shanghai based technology team,
who I learned right at the very end of my tenure, had
apparently received part of their compensation in BNB
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tokens, which were provided by Binance.com, which was a
source of real concern, you know, for the CFO and me
when we learned about that.
consider them to be third parties, that would be the one
caveat.
happening.
Q
Other than that, I'm not aware of that ever
Do you know who gave signoff to -- giving BNB
to these Shanghai based employees?
But -- and so if you
A
That long predated my arrival.
I have no
idea.
Q
Okay.
A
When did who receive the BNB?
Q
When did the Shanghai based employees receive
When did they receive the BNB?
the BNB?
A
Oh, I -- I don't know.
I mean, it was part of
their compensation.
payment or an annual bonus payment or what that was.
I say, that came to my attention two or three weeks
before I left the company, so I -- I mean, I wasn't even
aware of it until the very end.
Q
I don't know if it was a quarterly
As
Were the Shanghai based employees actual
employees of BAM Trading?
A
Well, they were employees of an entity that
had been set up for the purpose, called Boran.
understanding was that at one time they had been
My
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Binance.com employees and then when the Binance.US
separation happened in 2019, the decision was made to
hive off that group of 50 or so people and they would be
allocated full-time to Binance.US, so the question was
if you had a group of Shanghai based people working for
Binance.US, could they actually legally in China work
for Binance.US or did we have to set up a subsidiary
entity that would be where their employment was tied?
And often in multinational corporations that's the way
it works, is that there's a local corporate entity to
which those employees are assigned, so Boran was an
entirely dedicated to Binance.US workforce, paid for by
Binance.US, but housed within this entity called Boran.
Q
Where was Boran incorporated?
A
I don't know.
I don't know.
But I mean, my
assumption, it was a Chinese legal entity is my
assumption, but I -- I don't know.
Q
Was Boran wholly owned by BAM Trading?
A
I'm not sure.
Q
Okay.
A
I don't.
Q
How did you learn about Boran's structure?
A
Well, as I think I've just indicated, I don't
Do you know who would know?
know very much about Boran's structure, other than to
know, you know, sort of like there's Morgan Stanley,
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Morgan Stanley Asia, Morgan Stanley BD Amsterdam, et
cetera, et cetera, only to understand that its role in
the family of companies was like that; it was an
employee holding company set up for purposes of housing
these Chinese employees.
My focus, as you know from the document that
you have, was to migrate that entire function to an
onshore workforce.
enough to complete that task, but you know, that's
Obviously, I wasn't there long
essentially all I know about Boran.
Q
Did you learn about Boran outside of any
attorney/client communications or potential
attorney/client communications?
A
I mean, Boran was a commonly known thing at
BAM Trading, so I certainly talked about it with non-
lawyers, as well as with lawyers.
CFO was aware that there was an entity called Boran.
was the person who brought to my attention this BNB
arrangement, you know, late in my time there.
terms of whatever I would know about the corporate
structure or its rationale, that would have come from
counsel.
I mean, certainly the
Q
Okay.
A
Fifty or 60, something like that.
Q
Okay.
He
But in
How many people work for Boran?
We're going to go back to my original
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question before we went off on talking about Boran here,
you know, which was the question about, you know, who
gives final signoff on certain kinds of business
decisions.
question of like if anyone at .com had to give final
signoff for these activities?
about digital asset transfers.
I'm adjusting the question to ask the
We were just talking
Did anyone at .com have to give final signoff
on new employee hiring decisions?
A
Well, when you say anybody at Binance, there
were certain executives, you know, for example, Manny
Alvarez would be one, I think our chief people officer
would be another, whereas at any company, at a certain
C-Suite level those candidates will meet with the board
in order that the board is comfortable with who the
senior executives were.
CZ and Wei, and later Gin, were members of the
board and so, you know, before those two got hired, they
would have met with CZ and -- and I think Wei.
again, those -- they were not sitting in those
capacities as Binance.com employees; they were sitting
in the capacity as board members of BAM Trading or Bam
Holdings or whatever the entity was.
Q
But
Aside from CZ, Wei, and Gin, would anybody
else at .com have to give final signoff on new employee
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restate the question asked?
that prior testimony.
about informal discussions with CZ and maybe someone
else, but I want -- feel free to ask any questions, but
--
I don't have a memory of
I think he made some comments
THE WITNESS:
Yeah, I'm sorry, I don't
remember talking about informal reporting of BAM Trading
to .com.
meeting that I participated in in late July or early
I mean, the -- you know, there was one board
August of this year.
with CZ, and some out of cycle conversations with me and
CZ, and occasionally, you know, Wei or somebody else.
guess I don't regard that as reporting; that's just
corporate communication.
what you might be looking for.
There were weekly videoconferences
But beyond that, I'm not sure
BY MS. HITCHENS:
Q
Was there ever a time that you learned of some
more, sort of, informal reporting or communications
occurring between BAM Trading personnel and .com that
you hadn't previously been aware of?
I
A
Well, I -- so I would make a distinction
between reporting and communicate, right.
So Binance.US
had a series of dependencies on Binance.com, and so
there were -- there was really constant communication at
the operational level between people on Binance.US and
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people on Binance.com because, for example, there was
going to be a website upgrade and, you know, we copied
and then customized a lot of their code pursuant to a
services agreement that had been entered into at the
time the companies were separated.
ton of integration communication around that.
So there would be a
Or you know, they would be -- I'm trying to
think of good examples.
There would be like a -- like a
hacker or a system's attack of some kind, a DDoS attack
or something, which would make the matching engine
inaccessible or something else would happen, which would
have an effect on us.
interface, that happened every day involving large
numbers of people, again because as I'm sure you know,
under the licensing agreements and the services
agreements, a lot of the operating functions had these
interdependencies.
joined the company and saw that level of their
connection, I said this is going to be a problem and we
need to migrate the technology to full U.S. control for
a whole bunch of reasons.
operational, others being, you know, compliance,
privacy, et cetera.
communication.
That kind of operational
That's one of the reasons why when I
Some of them being
But there was plenty of
So when you said reporting, I was thinking of
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something different.
there was a lot of that.
Q
But in terms of communication,
Was there any sort of informal communication
that you were surprised by during your tenure that you
didn't originally know about and then subsequently
learned?
A
I -- I mean, I don't -- I guess I don't know
how to answer that.
I mean, certainly I was not privy
to all of the communication happening and so I'm sure
that some of it I learned about I would have been
surprised by in the sense that I hadn't previously known
about it and now I was learning about it for the first
time.
You know, the things that rose to the level of
surprise were things like when I learned that there were
Binance.US technology employees who were getting paid in
BNB tokens out of the Binance.com balance sheet.
what I would consider a surprise.
Q
Any other surprises like that?
A
You know, I would say that there were a
That's
handful of occasions where I would learn that, you know,
somebody at the company, sometimes in the U.S. but more
typically in -- in the Boran team, you know, would be
unhappy with some decision I had made or some initiative
we had launched
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and -- and those people might go straight to CZ, and you
know, that -- that obviously was something which when I
learned about it, I would endeavor to shut it down on
the theory that CZ's not the CEO of this company, this
is a U.S. company, you work for me, not him, this has to
stop.
That happened occasionally.
The BNB token to me is -- rises to a different
level of seriousness, but you know, there were things
like that.
Q
Were there any other kinds of surprises,
besides these sort of backdoor type communications you
were describing?
A
Yeah.
I mean, look I -- I couldn't begin to
just pull from my memory random examples of things.
mean, again, it was a -- it was a short tour of duty
marked by, you know, certain pinnacle memories, and you
know, the -- the random things I don't really remember
all that well.
Q
I
Who at BAM Trading U.S. did you learn was
making communications to CZ without your knowledge?
A
It was not -- I will say it was not always
that they were -- I mean, it's happened in both
directions, right, so there would be sometimes that it
came in one direction, sometimes in another.
know, I think Rena Shah had a fairly regular line of
But you
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communication into him, and to other people at
Binance.com.
regularly -- regular communications there.
You know, Chris Robins had fairly
On the inbound side, I think Josh Sroge, our
CFO, got inquiries from CZ fairly frequently, which you
know, in the early days weren't of great concern to me
because I've worked at bigger companies where, you know,
the board chair would reach out to some senior executive
to say, hey, I need some piece of information for
something, so I didn't regard that as particularly
surprising.
direction.
A little bit more surprising in the other
And then of course there were the guys who sat
in Shanghai, who did more of that.
Q
What -- who were the guys in Shanghai that
were making communications to CZ?
names?
A
Yeah, well, I mean there was Frank a lot, and
Gerry somewhat.
Gerry being the product person.
Q
Do you remember their
Okay.
Frank being the technology person,
Do you know who Rena Shah would contact
at .com to have these communications that we've been
talking about as, sort of the without your knowledge?
A
Yeah, I mean, Rena was deeply connected with a
lot of people over there.
I mean, she -- she, I think,
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had actually been there before the COVID lockdowns and
actually had spent time with those people, I think, so
she had a lot of people there that she talked to.
lot.
But CZ was one of them.
Q
Okay.
And what about Christopher Robins, do
you know who he was speaking with at .com?
A
He -- I think his -- his outreach was more
limited, but it did include CZ, and then it also
included a guy named Han, who was a former Latham
A
partner who is CZ's general counsel.
Q
When you say CZ's general counsel, are you
saying he had personal counsel?
A
Well, it's a great question.
I think that Han
-- my understanding is, is he was formerly the
Binance.com general counsel, but I think that their
observance of those kinds of distinctions that you're
making as between personal and corporate might be less
formal than we would make in the United States.
Q
What's an example of that?
A
I'm not sure I can think of a particular
example, but I have an impressionistic memory that there
were times when it was not clear who the client was.
Q
Is that because you would hear maybe, you
know, something said and you didn't know if that was
coming from CZ personally or CZ at .com or from .com?
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Are those sort of the breakdowns of --
A
No.
Q
-- what you're thinking
A
It's when -- no, I mean an example, I think,
would be -- and here I'm -- like this is
impressionistic, okay, based on memory but when we were
doing our venture round, right, there were a number of
issues that related to CZ's personal share ownership of
Binance.US, which was not Binance -- like remember, the
Twitter and Square analogy -- Binance.com did not own a
single share of any entity affiliated with Binance.US at
all, so in that sense the companies were as different as
Twitter and Square are, but there was a person who was
the majority shareholder of both companies, and that
person was CZ.
there was an issue having to do with a note that --
So at a certain point in the fundraise
MR. HOLSCHER:
I'm just going to interrupt, I
apologize.
discussed with counsel -- I don't know if that's where
your answer is going?
If there's any related disclose that was
THE WITNESS:
Yeah, this I don't think was
with counsel.
MR. HOLSCHER:
interrupt.
impinge on a privilege.
Okay.
I apologize to
I just wanted to make sure you didn't
Go ahead.
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THE WITNESS:
That's a totally great -- that's
a great point.
So all I would say is there was an issue that
was being discussed.
between our venture funds and the company having to do
with what's going to happen with this note?
know -- the company was the obligor, on the note CZ was
the obligee, and the question in the negotiation are we
going to buy him out?
out?
This was just a business issue
CZ was, you
Is he going to let us buy him
What's going to happen?
And I don't even remember what any lawyer said
about that, but I do know that the lawyer who showed up
on that was Han.
issue, that was a CZ issue, we -- we were sort of
puzzled as to who the client was.
what his position was, so I'm not disclosing any
communication with counsel, I just know he was the
person who was representing.
And since that was not a Binance.com
Again, I have no idea
So it's just an example of, you know, there
were different layers of -- of that kind of
communication.
Q
Okay.
general?
happened to it?
A
Do you know much about that note in
Like why it was entered into?
Or and what
My --
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MR. HOLSCHER:
learned that from counsel --
THE WITNESS:
MR. HOLSCHER:
I'll counsel you, if you
Yeah, I understand.
-- I don't want you to impinge
upon any corporate attorney/client privilege.
THE WITNESS:
Right.
Yeah.
My knowledge of
it really doesn't have anything to do with that, it just
has to do with the way that the company got
bootstrapped.
So you know, the way companies typically
get started is somebody has to pay for it, so you know,
Hewlett & Packard used their personal checking account
in their mother's garage.
is CZ gave the company its first $10 million to get
launched, and that was done in the form of a note.
What happened with Binance.US
MS. HITCHENS:
BY MS. HITCHENS:
Q
Okay.
So I'm going to ask you about sort of making
distinctions.
distinction when reporting to Changpeng Zhao in their
capacity as a board director, as opposed -- his capacity
as a board director, as opposed to reporting to him in
other roles and capacities?
make a distinction?
A
Did you ever personality make any
Did you ever personally
I mean, I was 100 percent clear in my own mind
that -- I mean, until I quit, obviously, but I was
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percent clear in my own mind that I worked for a board
of directors.
strongly held the conviction that I did not work for
Binance.com, that nobody at Binance.com was my boss, and
that my role was to complete and highlight the corporate
separateness.
myself to be talking to him in his role as board chair
BAM Trading.
working at Fannie Mae I spoke to our board chair all the
I personally, you know, very, very, very
So when I talked to CZ, I considered
The same way that when I was, you know,
time and I considered myself to be talking to the board
chair, not to somebody else but the board chair.
Q
Now, sitting here today and looking back on
your time at the company, do you look back and think,
oh, maybe there were distinctions when I was talking to
him?
A
Possibly not the distinction that you're
thinking about.
certain point was CZ was the CEO of BAM Trading, not me.
What -- what became clear to me at a
That's what became clear at a certain point.
That
wasn't because Binance.com somehow controlled us, but
again, he owns the vast majority of Binance.com so I put
that aside.
It was more of an issue of if I'm Steve
Ballmer and he's Bill Gates, who's really running this
company, right?
So it was not that oh, gee, CZ's acting
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in a different capacity, it is more of do I have the
delegation and autonomy to carry out the mission of a
CEO as outlined in the mission document that you've
seen, right?
did not.
Q
And at a certain point I concluded that I
Can you just elaborate more why you're saying
now sitting here today you look back and think of him as
the CEO of BAM Trading?
A
Yeah.
I mean, look, he's obviously not
formally the CEO of BAM Trading, but in -- in my
judgment, right, there's a distinction between
management and governance.
governance.
means day-to-day execution of a board approved strategy.
The role of the board is
The role of the CEO is management, which
The time that the switch flipped in my mind
was, right, so I had joined the company with knowledge
of issues at the company and a belief that if those
issues could be fixed the company could be very
successful.
so working on those fixes, to the exclusion of almost
everything else.
core foundational things realigned.
And I spent the first, you know, 80 days or
The idea was we're going to get these
That was all fine.
And then at a certain day
I was -- a certain day late in that tenure, I was
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overruled on all of them.
previously agreed and had worked on for 80 days were
suddenly repudiated with no further discussion, and on
that day, I realized, huh, I'm not actually the one
running this company, and the mission that I believe I
signed up for isn't the mission.
realized that, I left.
All of the things that we had
And as soon as I
Q
Well, can you tell me a little bit about that
A
Sure.
day?
I would say -- you know, when I say it
was a day, it was really the space of about eight to
days.
know, which I described previously.
were going through the standard agenda items, how's the
fundraise going?
It began with our regular weekly meeting, you
And you know, we
Who are the board members going to be?
What about the tech migration?
And in this particular
call, the issue was why are doing a tech migration?
And
what I remember about that call is that it was late in
the evening, and I said -- I said the tech migration is
one of the most important risks in this company.
the reason the people believe that, you know, that in
fact the company's not an independent company, that in
fact it's controlled by, you know, somebody sitting in
China.
through all the reasons why we had agreed, and I
It's
This is a foundational strategy, and I went
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reminded him that we had agreed in this document.
the call ended with no good resolution, other than he
wanted to have a follow-up call the next day.
remember this because it was a Saturday was the next
day.
first time I felt we really had a misalignment here.
thought we agreed on what the direction was.
And I
And so I went to bed thinking, yikes, this is the
And
I
So the next morning, we reconvened on a video
again.
I was, you know, now worried.
I had not been
worried the night before until the end of the call, when
I realized we were misaligned.
all smiles again and it was like, you know what, I -- I
trust you.
you need to do.
Saturday morning, it was
I hired you for a reason.
Do what you think
And I thought okay, whew, great.
Then things developed over the coming week,
and then we had that board meeting that I described.
And on the board meeting -- on the board call with these
other people around, including my management team,
that's when the decision was articulated that not only
were not going to migrate the tech stack, but in fact,
we weren't going to do this venture round because he
didn't like the investors.
have any independent board members because he's the
majority shareholder he's entitled to hire and fire all
the board members.
And by the way, we wouldn't
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That was when I said this really isn't going
to work.
Q
This is all occurring during the board meeting
when these statements were made about the complete
change of what you had been expecting from the Saturday
conversation; is that correct?
A
Yes.
Q
Well, you talked about having reached some
kind of agreement before this -- these events that just
transpired.
A
What was that agreement?
Well, so before I joined the company, you
know, the company has a controversial reputation.
has issues.
are here, and I knew that, too, and so my willingness to
commit my time and reputation to this was really
contingent on let's agree that we're going to do a
certain set of things that will address some of the most
important issues, okay, beginning with the question of
who actually controlled this company?
a U.S. company subject to U.S. supervision, operating
within a universe that only allows some products and not
others, et cetera, et cetera, that was right, all of
that.
It
I mean, we know this, that's why you guys
Is this actually
Then there was the technology issue.
have a TikTok problem?
Do we
Is all of the U.S. data
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accessible in China?
Is it possible that China could
take this U.S. company and shut it down by shutting down
our servers or whatever?
creation of a document, I forget what the name of it is,
but I mean, it's one of the documents you shared a
couple of days ago that I assume you're going to show
me.
come if we agree that this is the plan.
the plan, find somebody else.
So that's what led to the
That -- that document was my distillation of I will
And if it's not
That will be fine.
So you know, when I say agreement, that was a
document that I said let's agree on this as our
framework, and if we agree, great.
do fine.
Q
And if not, you'll
You'll find somebody else.
So when did that agreement get reached?
Was
it prior to you starting at the company before you sort
of signed your employment agreement?
A
Yeah.
Q
Okay.
A
Yes.
Oh, yeah.
Yes.
I mean, again, you have it.
whatever the date is.
it was certainly before I joined the company.
The date is
Q
I don't remember what it is, but
But in terms of the response that you got to,
sort of, your list of priorities that you -- it was your
proposal, but then when did you hear yes, we agree with
you, we're behind you on that list?
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A
The -- the matching engine sits in Japan,
okay.
understanding.
Other -- other code sits in Shanghai was my
Q
Okay.
So how did you learn the location of
these servers?
A
I refer to my earlier answer; I had these
lengthy bootcamp sessions with all kinds of people who
were educating me on the business in my first three or
four weeks at the company.
Q
Do you recall any documentation about the
servers specifically and their location?
A
I don't.
Q
Okay.
servers?
So do you know who actually owns the
A
Who owns the physical servers?
I have no
idea.
Q
Okay.
And then who actually pays for the
servers?
A
Well, I mean look, I'm not 100 percent sure
which servers at this point we're even talking about.
I
mean, the servers on which our user data are housed will
be owned by Amazon Web Services and paid for by us under
contract.
owned by some affiliate of Binance Holdings for which we
have access through a services agreement that we pay
The Matchbox matching engine server would be
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for.
In terms of the servers where the, for
example, you know, blockchain integrations for the next
token that we might list might happen, I have no idea
who owns that or how that gets paid for.
Q
In the meetings that you had with potential
investors and BAM Trading, did you recall those
potential investors ever asking about the location of
servers?
A
Not specifically, no.
Q
Did the location or servers ever come up
during those meetings?
A
I don't think so.
I mean, I -- you know,
technology in the meetings I was in wasn't discussed at
level of granularity.
described it to people was, you know, that we had three
significant risk factors.
dependance on Binance.com through this set of contracts;
that we had, you know, one shareholder, you know; and
that we had this board structure, and what I said is the
purpose of the round is to facilitate the fixing of
those problems.
- in this message that we need to migrate the tech
stack, diversify the cap table, and add independent
directors.
You know, the way that I always
We had a strong technology
So it was a very common trope in this -
That was sort of the mantra in these
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meetings.
Q
So for -- you were not the only one from BAM
Trading who was participating in the investor meetings
or even communications.
responsible for providing potential investors with the
details about the location of the servers or you know,
question -- very technical questions?
A
Who at BAM Trading was
Well, again, it's beyond my knowledge that
anybody was even asking those questions, so when you ask
who was responsible for answering those questions, I'm
not sure anyone was because I'm not sure the questions
were asked.
To the extent that they were, you know, there
was a data room that was established that was hosted by
our outside law firm, Skatten, and the two people most
responsible for managing the diligence process were
Chris Robins, our general counsel, and Josh Sroge, our
CFO.
Q
So you were --
A
So for example, that
Q
-- previously --
A
-- that document you showed me -- just to
--
finish the answer, that document that you showed me a
few minutes ago, that would have been prepared likely
jointly by Chris and Josh.
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Q
Thank you.
MR. HOLSCHER:
Kathleen, when you get -- when
you get spot, just take another five minute break when
you get a moment.
Just let us know a good time.
MS. HITCHENS:
Yeah, we'll try and move
through this and then take a break, okay?
Mark.
MR. HOLSCHER:
I was just politely
asking if we could take a break in the next minute or
two, that's all.
Okay.
Thank you,
Next few minutes would be great.
MS. HITCHENS:
Sure, I just wanted to ask one
follow-up question based on what --
MR. HOLSCHER:
Great.
MS. HITCHENS:
-- Brian was saying.
BY MS. HITCHENS:
Q
So which is, you mentioned that .com personnel
managed the offshore servers; is that correct?
A
.com managed the offshore servers?
I -- I
think what I said is I don't have any firsthand
knowledge of exactly what entity managed these servers.
I know that it wasn't us.
So you know, there was the
matching engine in Japan, presumably owned and
administered by some .com entity, but I have no idea
which one, and then there's other servers doing other
functions.
But again, I assume you will have a
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technology deposition but that's not going to be me.
don't know the answer to that.
Q
I
Did any of the Shanghai -- BAM Trading
Shanghai employees and this Boran entity, did they help
manage the offshore servers?
A
I mean, they were software engineers so
managing servers, you know, which is a hardware and IT
function, I - I think would have been beyond their
remit.
Q
These were guys who wrote code.
Did they have access to those servers, do you
know?
A
You mean like physical access to the rooms
where the servers were?
Q
I have no idea.
No, access to be able to load code onto them
and their software and manage the server?
A
Oh, yeah, well I mean, they would have hit
like "control s" and that would have saved something to
something.
guess we all have access to a server because we're
interfacing on computer that runs over a server, but
it's beyond my knowledge as to what that was or where
that piece of hardware sat.
Q
As sort of like, you know, right now, I
But they didn't have, you know, to your
knowledge like higher clearance to sort of work with the
servers in any way?
You know, let's say you and I, you
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know, we don't have the special permissions to, you
know, work with some of our technology but others do?
A
I -MR. HOLSCHER:
Kathleen, I just -- I don't
want to make a formal objection, he's indicated it's a
no, so I hate to have him just speculate on how the --
how the various engineers work with the software and
hardware.
He just doesn't know.
I just worry --
MS. HITCHENS:
Sure.
MR. HOLSCHER:
-- it's not right for him to
speculate.
MS. HITCHENS:
understood.
one more question.
Mark, there's no need to go on,
I want to get us to the bathroom, so just
BY MS. HITCHENS:
Q
Shanghai?
A
You know, where did the Boran employees sit in
Do you know where their offices were located?
I -- I really have no idea.
I'm sure at some
point I might have seen a street address, but I couldn't
tell you.
Q
space?
A
Did BAM Trading pay the lease for their office
I -- I don't know.
I mean, again, I assume
you've seen the services agreement that dictated the
various things that were shared and the accounting
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offsets and the payments and debits and credits that
occurred, that feels to me like a CFO question but I --
I don't know the answer to that.
Q
Okay.
MS. HITCHENS:
So let's go ahead and take a
five minute break.
We'll go off the record now at 1:
p.m., Eastern, and we'll be back at 1:55 p.m., Eastern,
thank you.
(Whereupon, a brief recess was taken.)
MS. HITCHENS:
record, it is 1:56 p.m., Eastern.
took a bathroom break.
Well, let's go back on the
Thank you very much,
And I just want to confirm, Mr. Brooks, that
we've not have any substantive conversations during the
break; is that correct?
THE WITNESS:
MS. HITCHENS:
Yeah.
And apart from your attorney,
you didn't speak with anyone during the break; correct?
THE WITNESS:
MS. HITCHENS:
And is anyone --
MR. HOLSCHER:
It was only --
MS. HITCHENS:
-- physically with you?
MR. HOLSCHER:
-- five minutes.
five minutes.
I'll let you know.
Did not.
It's only
I think you can ask these each time, but
We're -- there's no one else here,
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we're not consulting with anybody.
very quick.
MS. HITCHENS:
But we're also being
Thanks, Mark.
I'm trying to
belt and suspenders with this one.
Just want to make
sure no one's physically in the room with you or can
hear you?
MR. HOLSCHER:
(No response.)
MS. HITCHENS:
Okay.
for you, no one is physically with you, or no one can
hear you; is that correct?
MR. POMMER:
MS. HITCHENS:
BY MS. FILIPP:
And Bob, is that true
Q
That's correct.
Great.
So Mr. Brooks, do you have any understanding
as to what the code that runs Binance.US is?
we've previously discussed with regards to the matching
engine and other software?
understanding of what, sort of, the Binance.US code is?
A
Is it what
Or do you have a different
I -- I literally don't know how to answer that
question.
What the Binance.US code is, it's millions of
lines of computer code.
Q
Okay.
A
I mean, I'm -- I'm not sure what you're
looking for on that.
Q
Okay, that's fine.
In your contacts with
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potential investors, did potential -- did they ever ask
you about who maintains the wallets for the Binance.US
digital assets?
A
Don't recall that.
Q
Okay.
Do you recall if potential investors
ever asked about the Binance Holdings custodial
agreement?
A
I mean, I have no memory of that.
Again, I
mean, you showed me a few minutes ago the diligence
questions that our lead investor put to us.
the ones running the diligence process for the group of
investors.
questions that they asked us.
Q
They were
I mean, those were -- those were the
They asked you questions about the custody
agreement; is that what you're saying?
A
No.
I'm saying that there's a document which
lists all the questions that they asked us, and you just
showed that document to me.
Q
Okay.
Just wanted to clarify, okay.
All
right, so did you ever hear potential investors
explicitly ask about who has access to Binance.US
customer data?
A
I mean, look the only memory I have of that
kind of discussion is, you know, in part because many of
these investors are people I had known for a long time,
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as we opened the pitch by saying, "Let me tell you the
biggest risk in this company.
company is we are highly dependent on a bunch of
technology that sits in Asia.
going to do with the round proceeds is to migrate that
tech to the United States.
factor."
questions, those would be memorialized in the diligence
questionnaire that you've already showed me, and our
The biggest risk in this
One of the things we're
This is a giant risk
So to the extent they asked follow-up
answers were whatever they were.
But to be super clear, it's not like we were
running around representing that this technology is here
in the U.S. and super safe.
is the biggest honking risk factor in this company, is
the dependency on Chinese technology.
succeed unless we migrate it, we said to these guys, and
what we need is your help doing that.
of our two lead investors gave us the outside technology
consultant who helped us develop our plan for migrating
all of the technology.
Q
consultant?
A
What we were saying is this
We will not
And indeed, one
That was Red Point.
So.
Was Red Point the investor who recommended the
Or was Red Point the consultant?
Red Point had a new partner who was the former
CTO of GitHub and is one of the most famous computer
scientists in the world, and he worked with us to help
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can Charles Schwab?
issue is the sort of clearing price, the -- what's the
word that I'm looking for?
an additional trade on an existing piece of software is
basically zero, so you know, it's easy to offer low
trading fees, it's hard to offer high trading fees in my
judgment.
Q
I mean, I don't know.
The real
The -- the marginal cost of
Did BAM Trading offer lower fees than Coinbase
for trading fees?
A
Yes.
Q
And how was BAM Trading able to do that at a
low cost?
A
I -- I think I just answered that question,
because the marginal costs of a marginal trade on a
software platform is zero.
Q
Was BAM Trading paying less for its, sort of,
tech stack than if it had created it in-house by virtue
of being able to license it from .com?
A
Well, it is definitely true that unlike
Coinbase, which had to build its own software, starting
in 2012 from scratch and invest in hundreds and hundreds
of engineers, we were able to basically launch as a
going concern, you know, and license a piece of software
that existed that somebody had built.
always true that when you're able to buy an existing
And it's almost
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thing whose cost has already been fully amortized,
that's going to be a lot cheaper than if you have to
bear the cost of the initial startup expense yourself.
Q
So were the ongoing maintenance costs for the
Binance.US platform sort of less than Coinbase would
pay?
A
No idea.
Q
Okay.
A
I don't know.
Q
Okay.
Who would know?
Do you know if the cost would change
after the migration occurred?
A
The cost would likely go up.
Q
Okay.
A
Well, because the cost of operating one
And why is that?
platform is always lower than the cost of operating two
platforms, even if the two platforms are identical,
right.
United States to be the 50 people operating it.
labor costs are far higher than Chinese costs are, as
I'm sure that you know.
on we would be responsible for our own design decisions,
and that would cost money.
Q
So we would have to hire a team of people in the
U.S.
And you know, from that point
Were the service level agreements going to
sort of continue to exist after the migration?
A
Who can say that never happens, so I don't
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know.
Q
exist?
A
Do you know whether they were contemplated to
I mean, we never got close to that, so I don't
think that discussion was ever had.
Q
Okay.
So basically, under the service level
agreements, it sounds like .com was able to sort of run
with the same personnel the Binance.US platform and then
the .com platform; is that correct?
A
No.
So let me just start over for a second.
So first of all, you've now said service level agreement
several times; service level agreements just refer to
timetables and deliverables.
were.
agreement, not a service level agreement.
create common language here.
That's not what these
These were a services agreement and a licensing
Just to
We had 50 employees that were not Binance.com
employees, these were the Boran people we previously
talked about who were responsible for our technology.
One of the things that they would do is when Binance.com
had a new release of the code base for this or that or
the other, whatever the particular update was that they
might be releasing, it was the Boran employees who then
spend time, you know, essentially copying that code,
making such minor adjustments as were needed for that
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code to operate on our U.S., you know, front end
platform, and then would push it out to our customers.
So those were not Binance.com employees doing
that, they were Binance.US employees, Boran employees,
receiving updates from .com and then making those
changes for us.
Q
But those employees, though, did not work on
the matching engine; is that correct?
A
They didn't work on the matching engine,
that's right.
Q
So was .com using the -- you know, has its
matching engine folks, and they were also helping -- not
only helping to support the .com platform, ostensibly,
but those matching engine folks were also supporting the
.US platform?
A
engine.
No.
No, they were supporting the matching
We had a license --
Q
Okay.
A
-- that allowed us to use the matching engine.
Q
Okay.
Thank you for clarifying that.
So during your tenure at BAM Trading, did any
of the following happen: code changes occurred to the
Binance.US platform that were not announced to trading
personnel or to users?
MR. HOLSCHER:
I'm just going to counsel you
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EXHIBIT A-83A
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HO-13865
Brooks, Brian - Vol.
I.20211213.365944-HQ
12/13/2021 11:21 AM
Full-size Transcript
Prepared by:
HO-13865
Tuesday, June 06, 2023
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1
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
2
3
In the Matter of:
)
4
5
)
BINANCE.US
File No. HO-13865-A
)
6
7
WITNESS:
Brian Brooks
8
PAGES:
1 through 212
9
PLACE:
Securities and Exchange Commission
10
100 F Street
11
Washington, D.C. 20549
12
DATE:
N.E.
Monday, December 13, 2021
13
14
15
The above-entitled matter came on for hearing,
via WebEx, pursuant to notice, at 11:21 a.m.
16
17
18
19
20
21
22
23
24
25
Diversified Reporting Services, Inc.
(202)467-9200
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1
2
3
Trading accounts?
A
Digital asset transfers to BAM Trading
accounts?
4
Q
The company's trading accounts.
5
A
I -- I can't recall that happening in the time
6
7
that I was there.
Q
Okay.
And was anyone at .com required to give
8
final signoff for digital asset transfers to third
9
parties?
10
A
I -- I'm not even sure I understand the
11
question.
12
engine, right, that has buyers and sellers, so third
13
party buyers and sellers would come and that was the
14
source of liquidity, so we, you know, we were not
15
filling orders for customers, we were matching customer
16
orders, so I don't -- I'm not sure I would even know how
17
to answer the question.
18
19
20
21
22
Q
I mean, BAM Trading operated a matching
So were sometimes BAM Trading paid for
services through digital assets?
A
So with only one caveat, I can't -- I can't
recall that ever happening during my tenure.
The one caveat is there was this group of
23
employees, basically the Shanghai based technology team,
24
who I learned right at the very end of my tenure, had
25
apparently received part of their compensation in BNB
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1
tokens, which were provided by Binance.com, which was a
2
source of real concern, you know, for the CFO and me
3
when we learned about that.
4
consider them to be third parties, that would be the one
5
caveat.
6
happening.
7
Q
8
Other than that, I'm not aware of that ever
Do you know who gave signoff to -- giving BNB
to these Shanghai based employees?
9
10
But -- and so if you
A
That long predated my arrival.
I have no
idea.
11
Q
Okay.
12
A
When did who receive the BNB?
13
Q
When did the Shanghai based employees receive
14
15
When did they receive the BNB?
the BNB?
A
Oh, I -- I don't know.
I mean, it was part of
16
their compensation.
17
payment or an annual bonus payment or what that was.
18
I say, that came to my attention two or three weeks
19
before I left the company, so I -- I mean, I wasn't even
20
aware of it until the very end.
21
22
23
Q
I don't know if it was a quarterly
As
Were the Shanghai based employees actual
employees of BAM Trading?
A
Well, they were employees of an entity that
24
had been set up for the purpose, called Boran.
25
understanding was that at one time they had been
My
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50
1
Binance.com employees and then when the Binance.US
2
separation happened in 2019, the decision was made to
3
hive off that group of 50 or so people and they would be
4
allocated full-time to Binance.US, so the question was
5
if you had a group of Shanghai based people working for
6
Binance.US, could they actually legally in China work
7
for Binance.US or did we have to set up a subsidiary
8
entity that would be where their employment was tied?
9
And often in multinational corporations that's the way
10
it works, is that there's a local corporate entity to
11
which those employees are assigned, so Boran was an
12
entirely dedicated to Binance.US workforce, paid for by
13
Binance.US, but housed within this entity called Boran.
14
Q
Where was Boran incorporated?
15
A
I don't know.
I don't know.
But I mean, my
16
assumption, it was a Chinese legal entity is my
17
assumption, but I -- I don't know.
18
Q
Was Boran wholly owned by BAM Trading?
19
A
I'm not sure.
20
Q
Okay.
21
A
I don't.
22
Q
How did you learn about Boran's structure?
23
A
Well, as I think I've just indicated, I don't
Do you know who would know?
24
know very much about Boran's structure, other than to
25
know, you know, sort of like there's Morgan Stanley,
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1
Morgan Stanley Asia, Morgan Stanley BD Amsterdam, et
2
cetera, et cetera, only to understand that its role in
3
the family of companies was like that; it was an
4
employee holding company set up for purposes of housing
5
these Chinese employees.
6
My focus, as you know from the document that
7
you have, was to migrate that entire function to an
8
onshore workforce.
9
enough to complete that task, but you know, that's
10
11
Obviously, I wasn't there long
essentially all I know about Boran.
Q
Did you learn about Boran outside of any
12
attorney/client communications or potential
13
attorney/client communications?
14
A
I mean, Boran was a commonly known thing at
15
BAM Trading, so I certainly talked about it with non-
16
lawyers, as well as with lawyers.
17
CFO was aware that there was an entity called Boran.
18
was the person who brought to my attention this BNB
19
arrangement, you know, late in my time there.
20
terms of whatever I would know about the corporate
21
structure or its rationale, that would have come from
22
counsel.
I mean, certainly the
23
Q
Okay.
24
A
Fifty or 60, something like that.
25
Q
Okay.
He
But in
How many people work for Boran?
We're going to go back to my original
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1
question before we went off on talking about Boran here,
2
you know, which was the question about, you know, who
3
gives final signoff on certain kinds of business
4
decisions.
5
question of like if anyone at .com had to give final
6
signoff for these activities?
7
about digital asset transfers.
8
9
10
I'm adjusting the question to ask the
We were just talking
Did anyone at .com have to give final signoff
on new employee hiring decisions?
A
Well, when you say anybody at Binance, there
11
were certain executives, you know, for example, Manny
12
Alvarez would be one, I think our chief people officer
13
would be another, whereas at any company, at a certain
14
C-Suite level those candidates will meet with the board
15
in order that the board is comfortable with who the
16
senior executives were.
17
CZ and Wei, and later Gin, were members of the
18
board and so, you know, before those two got hired, they
19
would have met with CZ and -- and I think Wei.
20
again, those -- they were not sitting in those
21
capacities as Binance.com employees; they were sitting
22
in the capacity as board members of BAM Trading or Bam
23
Holdings or whatever the entity was.
24
25
Q
But
Aside from CZ, Wei, and Gin, would anybody
else at .com have to give final signoff on new employee
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1
restate the question asked?
2
that prior testimony.
3
about informal discussions with CZ and maybe someone
4
else, but I want -- feel free to ask any questions, but
5
--
6
I don't have a memory of
I think he made some comments
THE WITNESS:
Yeah, I'm sorry, I don't
7
remember talking about informal reporting of BAM Trading
8
to .com.
9
meeting that I participated in in late July or early
I mean, the -- you know, there was one board
10
August of this year.
11
with CZ, and some out of cycle conversations with me and
12
CZ, and occasionally, you know, Wei or somebody else.
13
guess I don't regard that as reporting; that's just
14
corporate communication.
15
what you might be looking for.
16
17
There were weekly videoconferences
But beyond that, I'm not sure
BY MS. HITCHENS:
Q
Was there ever a time that you learned of some
18
more, sort of, informal reporting or communications
19
occurring between BAM Trading personnel and .com that
20
you hadn't previously been aware of?
21
I
A
Well, I -- so I would make a distinction
22
between reporting and communicate, right.
So Binance.US
23
had a series of dependencies on Binance.com, and so
24
there were -- there was really constant communication at
25
the operational level between people on Binance.US and
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1
people on Binance.com because, for example, there was
2
going to be a website upgrade and, you know, we copied
3
and then customized a lot of their code pursuant to a
4
services agreement that had been entered into at the
5
time the companies were separated.
6
ton of integration communication around that.
7
So there would be a
Or you know, they would be -- I'm trying to
8
think of good examples.
There would be like a -- like a
9
hacker or a system's attack of some kind, a DDoS attack
10
or something, which would make the matching engine
11
inaccessible or something else would happen, which would
12
have an effect on us.
13
interface, that happened every day involving large
14
numbers of people, again because as I'm sure you know,
15
under the licensing agreements and the services
16
agreements, a lot of the operating functions had these
17
interdependencies.
18
joined the company and saw that level of their
19
connection, I said this is going to be a problem and we
20
need to migrate the technology to full U.S. control for
21
a whole bunch of reasons.
22
operational, others being, you know, compliance,
23
privacy, et cetera.
24
communication.
25
That kind of operational
That's one of the reasons why when I
Some of them being
But there was plenty of
So when you said reporting, I was thinking of
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1
something different.
2
there was a lot of that.
3
Q
But in terms of communication,
Was there any sort of informal communication
4
that you were surprised by during your tenure that you
5
didn't originally know about and then subsequently
6
learned?
7
A
I -- I mean, I don't -- I guess I don't know
8
how to answer that.
I mean, certainly I was not privy
9
to all of the communication happening and so I'm sure
10
that some of it I learned about I would have been
11
surprised by in the sense that I hadn't previously known
12
about it and now I was learning about it for the first
13
time.
14
You know, the things that rose to the level of
15
surprise were things like when I learned that there were
16
Binance.US technology employees who were getting paid in
17
BNB tokens out of the Binance.com balance sheet.
18
what I would consider a surprise.
19
Q
Any other surprises like that?
20
A
You know, I would say that there were a
That's
21
handful of occasions where I would learn that, you know,
22
somebody at the company, sometimes in the U.S. but more
23
typically in -- in the Boran team, you know, would be
24
unhappy with some decision I had made or some initiative
25
we had launched
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1
and -- and those people might go straight to CZ, and you
2
know, that -- that obviously was something which when I
3
learned about it, I would endeavor to shut it down on
4
the theory that CZ's not the CEO of this company, this
5
is a U.S. company, you work for me, not him, this has to
6
stop.
That happened occasionally.
7
The BNB token to me is -- rises to a different
8
level of seriousness, but you know, there were things
9
like that.
10
Q
Were there any other kinds of surprises,
11
besides these sort of backdoor type communications you
12
were describing?
13
A
Yeah.
I mean, look I -- I couldn't begin to
14
just pull from my memory random examples of things.
15
mean, again, it was a -- it was a short tour of duty
16
marked by, you know, certain pinnacle memories, and you
17
know, the -- the random things I don't really remember
18
all that well.
19
20
21
Q
I
Who at BAM Trading U.S. did you learn was
making communications to CZ without your knowledge?
A
It was not -- I will say it was not always
22
that they were -- I mean, it's happened in both
23
directions, right, so there would be sometimes that it
24
came in one direction, sometimes in another.
25
know, I think Rena Shah had a fairly regular line of
But you
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1
communication into him, and to other people at
2
Binance.com.
3
regularly -- regular communications there.
4
You know, Chris Robins had fairly
On the inbound side, I think Josh Sroge, our
5
CFO, got inquiries from CZ fairly frequently, which you
6
know, in the early days weren't of great concern to me
7
because I've worked at bigger companies where, you know,
8
the board chair would reach out to some senior executive
9
to say, hey, I need some piece of information for
10
something, so I didn't regard that as particularly
11
surprising.
12
direction.
13
14
15
A little bit more surprising in the other
And then of course there were the guys who sat
in Shanghai, who did more of that.
Q
What -- who were the guys in Shanghai that
16
were making communications to CZ?
17
names?
18
A
Yeah, well, I mean there was Frank a lot, and
19
Gerry somewhat.
20
Gerry being the product person.
21
Q
Do you remember their
Okay.
Frank being the technology person,
Do you know who Rena Shah would contact
22
at .com to have these communications that we've been
23
talking about as, sort of the without your knowledge?
24
25
A
Yeah, I mean, Rena was deeply connected with a
lot of people over there.
I mean, she -- she, I think,
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1
had actually been there before the COVID lockdowns and
2
actually had spent time with those people, I think, so
3
she had a lot of people there that she talked to.
4
lot.
5
6
7
But CZ was one of them.
Q
Okay.
And what about Christopher Robins, do
you know who he was speaking with at .com?
A
He -- I think his -- his outreach was more
8
limited, but it did include CZ, and then it also
9
included a guy named Han, who was a former Latham
10
11
12
13
A
partner who is CZ's general counsel.
Q
When you say CZ's general counsel, are you
saying he had personal counsel?
A
Well, it's a great question.
I think that Han
14
-- my understanding is, is he was formerly the
15
Binance.com general counsel, but I think that their
16
observance of those kinds of distinctions that you're
17
making as between personal and corporate might be less
18
formal than we would make in the United States.
19
Q
What's an example of that?
20
A
I'm not sure I can think of a particular
21
example, but I have an impressionistic memory that there
22
were times when it was not clear who the client was.
23
Q
Is that because you would hear maybe, you
24
know, something said and you didn't know if that was
25
coming from CZ personally or CZ at .com or from .com?
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1
Are those sort of the breakdowns of --
2
A
No.
3
Q
-- what you're thinking
4
A
It's when -- no, I mean an example, I think,
5
would be -- and here I'm -- like this is
6
impressionistic, okay, based on memory but when we were
7
doing our venture round, right, there were a number of
8
issues that related to CZ's personal share ownership of
9
Binance.US, which was not Binance -- like remember, the
10
Twitter and Square analogy -- Binance.com did not own a
11
single share of any entity affiliated with Binance.US at
12
all, so in that sense the companies were as different as
13
Twitter and Square are, but there was a person who was
14
the majority shareholder of both companies, and that
15
person was CZ.
16
there was an issue having to do with a note that --
17
So at a certain point in the fundraise
MR. HOLSCHER:
I'm just going to interrupt, I
18
apologize.
19
discussed with counsel -- I don't know if that's where
20
your answer is going?
21
If there's any related disclose that was
22
THE WITNESS:
Yeah, this I don't think was
with counsel.
23
MR. HOLSCHER:
24
interrupt.
25
impinge on a privilege.
Okay.
I apologize to
I just wanted to make sure you didn't
Go ahead.
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1
2
THE WITNESS:
That's a totally great -- that's
a great point.
3
So all I would say is there was an issue that
4
was being discussed.
5
between our venture funds and the company having to do
6
with what's going to happen with this note?
7
know -- the company was the obligor, on the note CZ was
8
the obligee, and the question in the negotiation are we
9
going to buy him out?
10
out?
This was just a business issue
CZ was, you
Is he going to let us buy him
What's going to happen?
11
And I don't even remember what any lawyer said
12
about that, but I do know that the lawyer who showed up
13
on that was Han.
14
issue, that was a CZ issue, we -- we were sort of
15
puzzled as to who the client was.
16
what his position was, so I'm not disclosing any
17
communication with counsel, I just know he was the
18
person who was representing.
19
And since that was not a Binance.com
Again, I have no idea
So it's just an example of, you know, there
20
were different layers of -- of that kind of
21
communication.
22
Q
Okay.
23
general?
24
happened to it?
25
A
Do you know much about that note in
Like why it was entered into?
Or and what
My --
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1
2
MR. HOLSCHER:
learned that from counsel --
3
THE WITNESS:
4
MR. HOLSCHER:
5
I'll counsel you, if you
Yeah, I understand.
-- I don't want you to impinge
upon any corporate attorney/client privilege.
6
THE WITNESS:
Right.
Yeah.
My knowledge of
7
it really doesn't have anything to do with that, it just
8
has to do with the way that the company got
9
bootstrapped.
So you know, the way companies typically
10
get started is somebody has to pay for it, so you know,
11
Hewlett & Packard used their personal checking account
12
in their mother's garage.
13
is CZ gave the company its first $10 million to get
14
launched, and that was done in the form of a note.
What happened with Binance.US
15
MS. HITCHENS:
16
BY MS. HITCHENS:
17
Q
Okay.
So I'm going to ask you about sort of making
18
distinctions.
19
distinction when reporting to Changpeng Zhao in their
20
capacity as a board director, as opposed -- his capacity
21
as a board director, as opposed to reporting to him in
22
other roles and capacities?
23
make a distinction?
24
25
A
Did you ever personality make any
Did you ever personally
I mean, I was 100 percent clear in my own mind
that -- I mean, until I quit, obviously, but I was 100
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1
percent clear in my own mind that I worked for a board
2
of directors.
3
strongly held the conviction that I did not work for
4
Binance.com, that nobody at Binance.com was my boss, and
5
that my role was to complete and highlight the corporate
6
separateness.
7
myself to be talking to him in his role as board chair
8
BAM Trading.
9
working at Fannie Mae I spoke to our board chair all the
I personally, you know, very, very, very
So when I talked to CZ, I considered
The same way that when I was, you know,
10
time and I considered myself to be talking to the board
11
chair, not to somebody else but the board chair.
12
Q
Now, sitting here today and looking back on
13
your time at the company, do you look back and think,
14
oh, maybe there were distinctions when I was talking to
15
him?
16
A
Possibly not the distinction that you're
17
thinking about.
18
certain point was CZ was the CEO of BAM Trading, not me.
19
What -- what became clear to me at a
That's what became clear at a certain point.
That
20
wasn't because Binance.com somehow controlled us, but
21
again, he owns the vast majority of Binance.com so I put
22
that aside.
23
It was more of an issue of if I'm Steve
24
Ballmer and he's Bill Gates, who's really running this
25
company, right?
So it was not that oh, gee, CZ's acting
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1
in a different capacity, it is more of do I have the
2
delegation and autonomy to carry out the mission of a
3
CEO as outlined in the mission document that you've
4
seen, right?
5
did not.
6
Q
And at a certain point I concluded that I
Can you just elaborate more why you're saying
7
now sitting here today you look back and think of him as
8
the CEO of BAM Trading?
9
A
Yeah.
I mean, look, he's obviously not
10
formally the CEO of BAM Trading, but in -- in my
11
judgment, right, there's a distinction between
12
management and governance.
13
governance.
14
means day-to-day execution of a board approved strategy.
The role of the board is
The role of the CEO is management, which
15
16
The time that the switch flipped in my mind
17
was, right, so I had joined the company with knowledge
18
of issues at the company and a belief that if those
19
issues could be fixed the company could be very
20
successful.
21
so working on those fixes, to the exclusion of almost
22
everything else.
23
core foundational things realigned.
24
25
And I spent the first, you know, 80 days or
The idea was we're going to get these
That was all fine.
And then at a certain day
I was -- a certain day late in that tenure, I was
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1
overruled on all of them.
2
previously agreed and had worked on for 80 days were
3
suddenly repudiated with no further discussion, and on
4
that day, I realized, huh, I'm not actually the one
5
running this company, and the mission that I believe I
6
signed up for isn't the mission.
7
realized that, I left.
8
9
All of the things that we had
And as soon as I
Q
Well, can you tell me a little bit about that
A
Sure.
day?
10
I would say -- you know, when I say it
11
was a day, it was really the space of about eight to 10
12
days.
13
know, which I described previously.
14
were going through the standard agenda items, how's the
15
fundraise going?
16
It began with our regular weekly meeting, you
And you know, we
Who are the board members going to be?
What about the tech migration?
And in this particular
17
call, the issue was why are doing a tech migration?
And
18
what I remember about that call is that it was late in
19
the evening, and I said -- I said the tech migration is
20
one of the most important risks in this company.
21
the reason the people believe that, you know, that in
22
fact the company's not an independent company, that in
23
fact it's controlled by, you know, somebody sitting in
24
China.
25
through all the reasons why we had agreed, and I
It's
This is a foundational strategy, and I went
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1
reminded him that we had agreed in this document.
2
the call ended with no good resolution, other than he
3
wanted to have a follow-up call the next day.
4
remember this because it was a Saturday was the next
5
day.
6
first time I felt we really had a misalignment here.
7
thought we agreed on what the direction was.
And I
And so I went to bed thinking, yikes, this is the
8
9
And
I
So the next morning, we reconvened on a video
again.
I was, you know, now worried.
I had not been
10
worried the night before until the end of the call, when
11
I realized we were misaligned.
12
all smiles again and it was like, you know what, I -- I
13
trust you.
14
you need to do.
15
Saturday morning, it was
I hired you for a reason.
Do what you think
And I thought okay, whew, great.
Then things developed over the coming week,
16
and then we had that board meeting that I described.
17
And on the board meeting -- on the board call with these
18
other people around, including my management team,
19
that's when the decision was articulated that not only
20
were not going to migrate the tech stack, but in fact,
21
we weren't going to do this venture round because he
22
didn't like the investors.
23
have any independent board members because he's the
24
majority shareholder he's entitled to hire and fire all
25
the board members.
And by the way, we wouldn't
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1
2
That was when I said this really isn't going
to work.
3
Q
This is all occurring during the board meeting
4
when these statements were made about the complete
5
change of what you had been expecting from the Saturday
6
conversation; is that correct?
7
A
Yes.
8
Q
Well, you talked about having reached some
9
kind of agreement before this -- these events that just
10
transpired.
11
A
What was that agreement?
Well, so before I joined the company, you
12
know, the company has a controversial reputation.
13
has issues.
14
are here, and I knew that, too, and so my willingness to
15
commit my time and reputation to this was really
16
contingent on let's agree that we're going to do a
17
certain set of things that will address some of the most
18
important issues, okay, beginning with the question of
19
who actually controlled this company?
20
a U.S. company subject to U.S. supervision, operating
21
within a universe that only allows some products and not
22
others, et cetera, et cetera, that was right, all of
23
that.
24
25
It
I mean, we know this, that's why you guys
Is this actually
Then there was the technology issue.
have a TikTok problem?
Do we
Is all of the U.S. data
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accessible in China?
Is it possible that China could
2
take this U.S. company and shut it down by shutting down
3
our servers or whatever?
4
creation of a document, I forget what the name of it is,
5
but I mean, it's one of the documents you shared a
6
couple of days ago that I assume you're going to show
7
me.
8
come if we agree that this is the plan.
9
the plan, find somebody else.
So that's what led to the
That -- that document was my distillation of I will
10
And if it's not
That will be fine.
So you know, when I say agreement, that was a
11
document that I said let's agree on this as our
12
framework, and if we agree, great.
13
do fine.
14
Q
And if not, you'll
You'll find somebody else.
So when did that agreement get reached?
Was
15
it prior to you starting at the company before you sort
16
of signed your employment agreement?
17
A
Yeah.
18
Q
Okay.
19
A
Yes.
Oh, yeah.
Yes.
I mean, again, you have it.
20
whatever the date is.
21
it was certainly before I joined the company.
The date is
22
Q
I don't remember what it is, but
But in terms of the response that you got to,
23
sort of, your list of priorities that you -- it was your
24
proposal, but then when did you hear yes, we agree with
25
you, we're behind you on that list?
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1
A
The -- the matching engine sits in Japan,
2
okay.
3
understanding.
4
Other -- other code sits in Shanghai was my
5
Q
Okay.
So how did you learn the location of
these servers?
6
A
I refer to my earlier answer; I had these
7
lengthy bootcamp sessions with all kinds of people who
8
were educating me on the business in my first three or
9
four weeks at the company.
10
11
Q
Do you recall any documentation about the
servers specifically and their location?
12
A
I don't.
13
Q
Okay.
14
servers?
15
16
17
18
19
So do you know who actually owns the
A
Who owns the physical servers?
I have no
idea.
Q
Okay.
And then who actually pays for the
servers?
A
Well, I mean look, I'm not 100 percent sure
20
which servers at this point we're even talking about.
I
21
mean, the servers on which our user data are housed will
22
be owned by Amazon Web Services and paid for by us under
23
contract.
24
owned by some affiliate of Binance Holdings for which we
25
have access through a services agreement that we pay
The Matchbox matching engine server would be
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1
for.
2
In terms of the servers where the, for
3
example, you know, blockchain integrations for the next
4
token that we might list might happen, I have no idea
5
who owns that or how that gets paid for.
6
Q
In the meetings that you had with potential
7
investors and BAM Trading, did you recall those
8
potential investors ever asking about the location of
9
servers?
10
A
Not specifically, no.
11
Q
Did the location or servers ever come up
12
13
during those meetings?
A
I don't think so.
I mean, I -- you know,
14
technology in the meetings I was in wasn't discussed at
15
level of granularity.
16
described it to people was, you know, that we had three
17
significant risk factors.
18
dependance on Binance.com through this set of contracts;
19
that we had, you know, one shareholder, you know; and
20
that we had this board structure, and what I said is the
21
purpose of the round is to facilitate the fixing of
22
those problems.
23
- in this message that we need to migrate the tech
24
stack, diversify the cap table, and add independent
25
directors.
You know, the way that I always
We had a strong technology
So it was a very common trope in this -
That was sort of the mantra in these
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1
meetings.
2
Q
So for -- you were not the only one from BAM
3
Trading who was participating in the investor meetings
4
or even communications.
5
responsible for providing potential investors with the
6
details about the location of the servers or you know,
7
question -- very technical questions?
8
9
A
Who at BAM Trading was
Well, again, it's beyond my knowledge that
anybody was even asking those questions, so when you ask
10
who was responsible for answering those questions, I'm
11
not sure anyone was because I'm not sure the questions
12
were asked.
13
To the extent that they were, you know, there
14
was a data room that was established that was hosted by
15
our outside law firm, Skatten, and the two people most
16
responsible for managing the diligence process were
17
Chris Robins, our general counsel, and Josh Sroge, our
18
CFO.
19
Q
So you were --
20
A
So for example, that
21
Q
-- previously --
22
A
-- that document you showed me -- just to
--
23
finish the answer, that document that you showed me a
24
few minutes ago, that would have been prepared likely
25
jointly by Chris and Josh.
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1
Q
2
Thank you.
MR. HOLSCHER:
Kathleen, when you get -- when
3
you get spot, just take another five minute break when
4
you get a moment.
5
Just let us know a good time.
MS. HITCHENS:
Yeah, we'll try and move
6
through this and then take a break, okay?
7
Mark.
8
9
10
MR. HOLSCHER:
I was just politely
asking if we could take a break in the next minute or
two, that's all.
11
12
Okay.
Thank you,
Next few minutes would be great.
MS. HITCHENS:
Sure, I just wanted to ask one
follow-up question based on what --
13
MR. HOLSCHER:
Great.
14
MS. HITCHENS:
-- Brian was saying.
15
BY MS. HITCHENS:
16
17
18
Q
So which is, you mentioned that .com personnel
managed the offshore servers; is that correct?
A
.com managed the offshore servers?
I -- I
19
think what I said is I don't have any firsthand
20
knowledge of exactly what entity managed these servers.
21
I know that it wasn't us.
So you know, there was the
22
matching engine in Japan, presumably owned and
23
administered by some .com entity, but I have no idea
24
which one, and then there's other servers doing other
25
functions.
But again, I assume you will have a
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technology deposition but that's not going to be me.
2
don't know the answer to that.
3
Q
I
Did any of the Shanghai -- BAM Trading
4
Shanghai employees and this Boran entity, did they help
5
manage the offshore servers?
6
A
I mean, they were software engineers so
7
managing servers, you know, which is a hardware and IT
8
function, I - I think would have been beyond their
9
remit.
10
Q
11
12
13
14
15
16
These were guys who wrote code.
Did they have access to those servers, do you
know?
A
You mean like physical access to the rooms
where the servers were?
Q
I have no idea.
No, access to be able to load code onto them
and their software and manage the server?
A
Oh, yeah, well I mean, they would have hit
17
like "control s" and that would have saved something to
18
something.
19
guess we all have access to a server because we're
20
interfacing on computer that runs over a server, but
21
it's beyond my knowledge as to what that was or where
22
that piece of hardware sat.
23
Q
As sort of like, you know, right now, I
But they didn't have, you know, to your
24
knowledge like higher clearance to sort of work with the
25
servers in any way?
You know, let's say you and I, you
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know, we don't have the special permissions to, you
2
know, work with some of our technology but others do?
3
A
4
I -MR. HOLSCHER:
Kathleen, I just -- I don't
5
want to make a formal objection, he's indicated it's a
6
no, so I hate to have him just speculate on how the --
7
how the various engineers work with the software and
8
hardware.
He just doesn't know.
I just worry --
9
MS. HITCHENS:
Sure.
10
MR. HOLSCHER:
-- it's not right for him to
11
speculate.
12
MS. HITCHENS:
13
understood.
14
one more question.
15
16
17
18
Mark, there's no need to go on,
I want to get us to the bathroom, so just
BY MS. HITCHENS:
Q
Shanghai?
A
You know, where did the Boran employees sit in
Do you know where their offices were located?
I -- I really have no idea.
I'm sure at some
19
point I might have seen a street address, but I couldn't
20
tell you.
21
Q
22
space?
23
A
Did BAM Trading pay the lease for their office
I -- I don't know.
I mean, again, I assume
24
you've seen the services agreement that dictated the
25
various things that were shared and the accounting
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offsets and the payments and debits and credits that
2
occurred, that feels to me like a CFO question but I --
3
I don't know the answer to that.
4
Q
5
Okay.
MS. HITCHENS:
So let's go ahead and take a
6
five minute break.
We'll go off the record now at 1:50
7
p.m., Eastern, and we'll be back at 1:55 p.m., Eastern,
8
thank you.
9
(Whereupon, a brief recess was taken.)
10
MS. HITCHENS:
11
record, it is 1:56 p.m., Eastern.
12
took a bathroom break.
13
Well, let's go back on the
Thank you very much,
And I just want to confirm, Mr. Brooks, that
14
we've not have any substantive conversations during the
15
break; is that correct?
16
THE WITNESS:
17
MS. HITCHENS:
18
Yeah.
And apart from your attorney,
you didn't speak with anyone during the break; correct?
19
THE WITNESS:
20
MS. HITCHENS:
And is anyone --
21
MR. HOLSCHER:
It was only --
22
MS. HITCHENS:
-- physically with you?
23
MR. HOLSCHER:
-- five minutes.
24
five minutes.
25
I'll let you know.
Did not.
It's only
I think you can ask these each time, but
We're -- there's no one else here,
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we're not consulting with anybody.
2
very quick.
3
MS. HITCHENS:
But we're also being
Thanks, Mark.
I'm trying to
4
belt and suspenders with this one.
Just want to make
5
sure no one's physically in the room with you or can
6
hear you?
7
MR. HOLSCHER:
(No response.)
8
MS. HITCHENS:
Okay.
9
10
for you, no one is physically with you, or no one can
hear you; is that correct?
11
MR. POMMER:
12
MS. HITCHENS:
13
BY MS. FILIPP:
14
And Bob, is that true
Q
That's correct.
Great.
So Mr. Brooks, do you have any understanding
15
as to what the code that runs Binance.US is?
16
we've previously discussed with regards to the matching
17
engine and other software?
18
understanding of what, sort of, the Binance.US code is?
19
A
Is it what
Or do you have a different
I -- I literally don't know how to answer that
20
question.
What the Binance.US code is, it's millions of
21
lines of computer code.
22
Q
Okay.
23
A
I mean, I'm -- I'm not sure what you're
24
25
looking for on that.
Q
Okay, that's fine.
In your contacts with
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potential investors, did potential -- did they ever ask
2
you about who maintains the wallets for the Binance.US
3
digital assets?
4
A
Don't recall that.
5
Q
Okay.
Do you recall if potential investors
6
ever asked about the Binance Holdings custodial
7
agreement?
8
A
9
I mean, I have no memory of that.
Again, I
mean, you showed me a few minutes ago the diligence
10
questions that our lead investor put to us.
11
the ones running the diligence process for the group of
12
investors.
13
questions that they asked us.
14
15
16
Q
They were
I mean, those were -- those were the
They asked you questions about the custody
agreement; is that what you're saying?
A
No.
I'm saying that there's a document which
17
lists all the questions that they asked us, and you just
18
showed that document to me.
19
Q
Okay.
Just wanted to clarify, okay.
All
20
right, so did you ever hear potential investors
21
explicitly ask about who has access to Binance.US
22
customer data?
23
A
I mean, look the only memory I have of that
24
kind of discussion is, you know, in part because many of
25
these investors are people I had known for a long time,
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as we opened the pitch by saying, "Let me tell you the
2
biggest risk in this company.
3
company is we are highly dependent on a bunch of
4
technology that sits in Asia.
5
going to do with the round proceeds is to migrate that
6
tech to the United States.
7
factor."
8
questions, those would be memorialized in the diligence
9
questionnaire that you've already showed me, and our
10
The biggest risk in this
One of the things we're
This is a giant risk
So to the extent they asked follow-up
answers were whatever they were.
11
But to be super clear, it's not like we were
12
running around representing that this technology is here
13
in the U.S. and super safe.
14
is the biggest honking risk factor in this company, is
15
the dependency on Chinese technology.
16
succeed unless we migrate it, we said to these guys, and
17
what we need is your help doing that.
18
of our two lead investors gave us the outside technology
19
consultant who helped us develop our plan for migrating
20
all of the technology.
21
Q
22
consultant?
23
A
What we were saying is this
We will not
And indeed, one
That was Red Point.
So.
Was Red Point the investor who recommended the
Or was Red Point the consultant?
Red Point had a new partner who was the former
24
CTO of GitHub and is one of the most famous computer
25
scientists in the world, and he worked with us to help
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1
can Charles Schwab?
2
issue is the sort of clearing price, the -- what's the
3
word that I'm looking for?
4
an additional trade on an existing piece of software is
5
basically zero, so you know, it's easy to offer low
6
trading fees, it's hard to offer high trading fees in my
7
judgment.
8
9
Q
I mean, I don't know.
The real
The -- the marginal cost of
Did BAM Trading offer lower fees than Coinbase
for trading fees?
10
A
Yes.
11
Q
And how was BAM Trading able to do that at a
12
13
low cost?
A
I -- I think I just answered that question,
14
because the marginal costs of a marginal trade on a
15
software platform is zero.
16
Q
Was BAM Trading paying less for its, sort of,
17
tech stack than if it had created it in-house by virtue
18
of being able to license it from .com?
19
A
Well, it is definitely true that unlike
20
Coinbase, which had to build its own software, starting
21
in 2012 from scratch and invest in hundreds and hundreds
22
of engineers, we were able to basically launch as a
23
going concern, you know, and license a piece of software
24
that existed that somebody had built.
25
always true that when you're able to buy an existing
And it's almost
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1
thing whose cost has already been fully amortized,
2
that's going to be a lot cheaper than if you have to
3
bear the cost of the initial startup expense yourself.
4
Q
So were the ongoing maintenance costs for the
5
Binance.US platform sort of less than Coinbase would
6
pay?
7
A
No idea.
8
Q
Okay.
9
A
I don't know.
10
Q
Okay.
11
Who would know?
Do you know if the cost would change
after the migration occurred?
12
A
The cost would likely go up.
13
Q
Okay.
14
A
Well, because the cost of operating one
And why is that?
15
platform is always lower than the cost of operating two
16
platforms, even if the two platforms are identical,
17
right.
18
United States to be the 50 people operating it.
19
labor costs are far higher than Chinese costs are, as
20
I'm sure that you know.
21
on we would be responsible for our own design decisions,
22
and that would cost money.
23
24
25
Q
So we would have to hire a team of people in the
U.S.
And you know, from that point
Were the service level agreements going to
sort of continue to exist after the migration?
A
Who can say that never happens, so I don't
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1
know.
2
Q
3
exist?
4
A
5
Do you know whether they were contemplated to
I mean, we never got close to that, so I don't
think that discussion was ever had.
6
Q
Okay.
So basically, under the service level
7
agreements, it sounds like .com was able to sort of run
8
with the same personnel the Binance.US platform and then
9
the .com platform; is that correct?
10
A
No.
So let me just start over for a second.
11
So first of all, you've now said service level agreement
12
several times; service level agreements just refer to
13
timetables and deliverables.
14
were.
15
agreement, not a service level agreement.
16
create common language here.
17
That's not what these
These were a services agreement and a licensing
Just to
We had 50 employees that were not Binance.com
18
employees, these were the Boran people we previously
19
talked about who were responsible for our technology.
20
One of the things that they would do is when Binance.com
21
had a new release of the code base for this or that or
22
the other, whatever the particular update was that they
23
might be releasing, it was the Boran employees who then
24
spend time, you know, essentially copying that code,
25
making such minor adjustments as were needed for that
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1
code to operate on our U.S., you know, front end
2
platform, and then would push it out to our customers.
3
So those were not Binance.com employees doing
4
that, they were Binance.US employees, Boran employees,
5
receiving updates from .com and then making those
6
changes for us.
7
8
9
10
11
Q
But those employees, though, did not work on
the matching engine; is that correct?
A
They didn't work on the matching engine,
that's right.
Q
So was .com using the -- you know, has its
12
matching engine folks, and they were also helping -- not
13
only helping to support the .com platform, ostensibly,
14
but those matching engine folks were also supporting the
15
.US platform?
16
17
A
engine.
No.
No, they were supporting the matching
We had a license --
18
Q
Okay.
19
A
-- that allowed us to use the matching engine.
20
Q
Okay.
21
Thank you for clarifying that.
So during your tenure at BAM Trading, did any
22
of the following happen: code changes occurred to the
23
Binance.US platform that were not announced to trading
24
personnel or to users?
25
MR. HOLSCHER:
I'm just going to counsel you
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