Amidst the SEC-Binance lawsuit, Binance’s attorneys have revealed that the Chairman of the Securities and Exchange Commission, Gary Gensler, had offered to serve as an advisor to the crypto exchange in 2019.
According to documents filed by the SEC on Wednesday, attorneys from two of Binance’s law firms, Gibson Dunn and Latham & Watkins, allege that Gensler proposed to serve as an advisor to the cryptocurrency exchange in March 2019 conversations with Binance executives and Zhao. According to the filing, he eventually met Zhao in Japan for lunch later that month.
Gensler lectured at the Sloan School of Management of the Massachusetts Institute of Technology. President Biden appointed him head of the SEC in 2021. Over the past year, he has taken a hard stance against the cryptocurrency industry, suing a number of companies for purportedly selling unregistered securities.
The SEC filed 13 allegations against Binance and Zhao earlier this week, alleging that the company failed to register as an exchange and broker-dealer, improperly commingled funds, and lacked essential internal business controls.
Before Gensler began suing Binance, he attempted to curry favor with the company, according to the attorneys. The Wall Street Journal previously reported on the relationship between Gensler and Binance, citing internal Binance communications and a source close to the SEC chair. Both indicated that Binance reached out to Gensler.
In their most recent filing, Gibson and Latham state that Zhao remained in contact with Gensler after their March meeting. Zhao sat down for an interview with Gensler as part of a cryptocurrency course he was instructing at MIT at the request of the future SEC chair.
Tuesday, the SEC referred to Zhao, who reportedly resides in the United Arab Emirates, as a “foreign national” with a propensity for “geographic evasion.” Now, Zhao’s attorneys assert that Zhao knew Gensler was “comfortable serving as an informal advisor.”
According to the letter, Gensler was scheduled to testify before the House Financial Services Committee in 2019, and he sent a copy of his prepared testimony to Zhao before the hearing.
In July of that year, Gensler testified before the House regarding Facebook’s then-proposed crypto-currency Libra and its intended wallet, Calibra.
“I do not advise any financial, technology, blockchain, or other companies, nor do I own any cryptocurrencies,” Gensler stated in his prepared testimony.
Gensler’s counsel to legislators then was comparable to his current public statements. With Facebook imagining a wallet to hold customer assets, he stated that “rules must be in place to prevent Calibra from using or potentially abusing such customer funds.”
He also testified more broadly in language similar to his most recent statements.
“We must be vigilant against illegal activities such as tax evasion, money laundering, financing terrorism, and sanctions evasion,” he said. “We must protect the privacy of individuals.”
Due to Gensler’s connections to Zhao, Binance’s attorneys have requested that he recuse himself from any actions involving the company. They report receiving no acknowledgment from SEC personnel.
A spokesperson for the SEC stated in a statement to CNBC that “the Chair is very familiar with and in full compliance with his ethical obligations, including any recusal obligations.”
The SEC’s investigations of Binance.US and Binance began in 2020 and 2021, respectively, after the last alleged contact between Gensler and Zhao.
