Yahoo Finance SEC's Gary Gensler wanted to advise Binance in 2019, lawyers say
The day before Securities and Exchange Commission’s Gary Gensler cracked down on Binance Holdings Ltd. with a new lawsuit, lawyers for the cryptocurrency exchange argued the SEC chair should be recused from any action against the company.
The reason? Gensler offered to be an adviser to Binance during March 2019 conversations with Binance and its founder Changpeng Zhao, according to the lawyers.
Binance made this June 4 recusal request public in court documents filed Wednesday, part of the company’s response to a SEC lawsuit alleging the world’s largest crypto exchange violated securities laws, misled investors and mishandled customer funds.
The disclosure is a sign of how central a figure Gensler has become as the SEC pursues a series of aggressive actions against the crypto world. The SEC chair has made it clear that he wants to force the industry to comply with US securities laws.
Binance, he said Monday, "engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law."
The SEC has asked a US District Court in Washington to approve a temporary restraining order that would freeze the assets of Binance’s US entity Binance.US and preserve its documents.
A hearing on the restraining order is scheduled for Monday.
'Remained in touch'
The interactions between Gensler and Binance, according to the lawyers, date back to a time before Gensler was chair of the SEC. At the time he was a teacher at Massachusetts Institute of Technology’s Sloan School of Management.
During "several discussions" with Zhao and other people from Binance’s parent company in 2019, Gensler acknowledged the regulatory uncertainty for crypto and offered to serve as an "informal advisor" to Binance, the lawyers said in their letter to the SEC on June 4.
Gensler, they said, met with Zhao for lunch in Japan in March 2019 "during which they discussed the BNB token and the prospect of BHL establishing a U.S.-based exchange."
Zhao and Gensler "remained in touch after that meeting," and Zhao "understood" that Gensler “was comfortable serving as an informal advisor."
Later in 2019, Gensler also asked Zhao to be interviewed for a cryptocurrency course he taught at MIT and sent Zhao his written testimony the day before he appeared as a witness in a US House Financial Services Committee hearing where he testified on cryptocurrency subjects.
"The Staff has never addressed or even acknowledged—regarding Chairman Gensler’s personal history with BHL and Mr. Zhao," lawyers representing Binance told the SEC in their Sunday letter.
The SEC declined to comment on these claims.
'Odd timing'
The Wall Street Journal has reported that internal Binance chat logs indicated that Binance courted Gensler as part of a larger strategy to prevent the "nuclear fall out" of a lawsuit from US regulators as far back as 2018.
The Journal also reported that Gensler was approached by multiple private firms, including Binance, to be an adviser while teaching at MIT from 2018 to 2021. He declined to do so, the Journal reported.
The lawyers cited that Journal story in their June 4 letter but didn’t address the reporting specifically.
They instead noted the "odd timing" of the article, which appeared days after Zhao responded to a SEC Wells Notice informing him of a likely enforcement action.
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