New details are emerging regarding the relationship between the Securities and Exchange Commission and Binance after the regulator filed 13 charges against the top cryptocurrency exchange Monday for rules violations.
Lawyers for Binance allege that SEC Chair Gary Gensler approached the exchange in 2019 offering to serve as an informal advisor, according to documents filed Wednesday. Attorneys from the Gibson Dunn and Latham & Watkins law firms claim that Gensler had several conversations with Binance executives, including CEO Changpeng Zhao, in March 2019. At the time, Gensler was a professor at the Massachusetts Institute of Technology's Sloan School of Management.
The Wall Street Journal reported in early May that Binance staff were the ones to approach Gensler in 2018 and 2019.
Coinbase Now In SEC Crosshairs. Binance Goes On The Defensive.
Gensler and Zhao continued to stay in touch following those meetings, the lawyers say. Zhao also sat for an interview with Gensler as part of an MIT crypto course he was teaching. Later in 2019, Gensler sent a copy of his prepared statements about Facebook's then-proposed crypto Libra to Zhao. He sent it to Zhao ahead of his testimony before the House Financial Services Committee.
"I do not advise any financial, technology, blockchain or other companies, nor do I own any cryptocurrencies," Gensler said in his prepared statements.
Binance lawyers requested Gensler recuse himself from the lawsuit based on his alleged ties to Zhao. An SEC spokesperson told CNBC that Gensler was "very familiar with and in full compliance with his ethical obligations including any recusal obligations."
Binance Lawsuit
The SEC charged Binance and Zhao on Monday with evading securities laws, illegally operating in the U.S. and commingling and misusing customer funds. The lawsuit alleges Zhao and the exchange secretly controlled the operations of its U.S. affiliate, BinanceUS, behind the scenes. Binance was reportedly founded in China and moved out of that country ahead of China's ban on cryptocurrencies. The company claims it does not have any single headquarters. It says it is headquartered in various countries, according to reports.
Binance denied the charges saying, "any allegations that user assets on the Binance.U.S. platform have ever been at risk are simply wrong."
Some investors were quick to pull their funds from the crypto exchange's platforms. Binance and its U.S. affiliate saw $1.43 billion in withdrawals by Tuesday morning. Binance had $74.7 billion in holdings as of mid-November, Bloomberg previously reported.
Senators Call Out Binance
Senators Elizabeth Warren (D.-Mass.) and Chris Van Hollen (D-Md.) sent a letter to U.S. Attorney General Merrick Garland requesting he investigate whether Binance lied about its business practices to lawmakers.
The lawmakers claimed that the exchange made false statements about BinanceUS operating as a separate entity. They noted "This is a serious matter," Bloomberg reported Thursday.
Warren and Van Hollen sent a letter to Binance in March, accusing the company of money laundering and evading U.S. laws. That letter alleged Binance facilitated at least $10 billion in money laundering and sanctions evasions.
SEC Crypto Crackdown
The lawsuit comes amid a U.S. regulatory crackdown on cryptocurrency firms. The SEC on Tuesday charged Coinbase with operating as an unregistered exchange and selling unregistered securities. In February, crypto exchange Kraken paid $30 million in a settlement regarding unregistered securities sales.
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