Lawyers for Binance have alleged that Securities and Exchange Commission Chair Gary Gensler offered to serve as an informal advisor to the company, according to a letter sent to the SEC on June 4—just days before the agency filed a blockbuster lawsuit against the crypto exchange.
"We again raise our concerns—which the staff has never addressed or even acknowledged—regarding Chairman Gensler’s personal history with BHL [Binance] and Mr. Zhao," wrote lawyers from Latham & Watkins and Gibson, Dunn & Crutcher, referencing Changpeng Zhao, the founder and CEO of Binance.
The lawyers said Gensler had several conversations with Binance employees and Zhao before he was tapped to head the SEC. "Mr. Gensler acknowledged the regulatory uncertainty surrounding cryptocurrency and offered to serve as an advisor," they wrote.
Moreover, in 2019, Gensler met Zhao in Japan for "an in-person lunch meeting" at which they discussed, among other topics, Binance's BNB token and the prospect of Binance opening a U.S.-based exchange, the lawyers alleged. Gensler and Zhao remained in touch after the meeting, and the Binance CEO even participated in Gensler's cryptocurrency course at MIT later that year.
"As we conveyed nearly four months ago, Mr. Gensler should have been recused from any consideration in this matter based on this history and the prospect that Mr. Gensler may be a material fact witness," wrote the lawyers from Latham & Watkins and Gibson, Dunn & Crutcher.
The SEC did not immediately respond to a request for comment, but in a statement shared with the Wall Street Journal, a spokesperson said that "[t]he chair is fully aware of and in full compliance with his ethical obligations, including any recusal obligations."
The letter alleging the familiarity between Gensler and Zhao appeared in a mountain of documents the SEC released to back up a 136-page lawsuit it filed against Binance, the world's largest cryptocurrency exchange, on Monday morning. "Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” Gensler said in a statement.
The agency's charges follow a prior lawsuit that the Commodities and Futures Trading Commission filed in March, which similarly alleged that the exchange sought to circumvent U.S. securities law through encouraging large-pocketed traders to use Binance.com as opposed to Binance.US, the States-based subsidiary.
And on Tuesday, just one day after filing the Binance lawsuit, the SEC sued Coinbase, the largest U.S. cryptocurrency exchange, alleging that it operated as an unregistered broker, national securities exchange, and clearing agency.
The two lawsuits against perhaps the two most important cryptocurrency exchanges in the market mark an increasing crescendo of enforcement action from the federal government since FTX, the now bankrupt crypto exchange, collapsed in November. Since then, the SEC has targeted industry stalwarts including Genesis, Gemini, Kraken, and Tron.
