Securities and Exchange Commission Chair Gary Gensler offered to serve as a Binance advisor in 2019, two years before taking helm of the regulator, according to a court filing by Binance’s legal team.
Gensler, who this week sued the crypto firm for failing to register as an exchange and broker-dealer, made the offer to Binance executives and met with founder and CEO Changpeng Zhao for lunch in Japan, according to the filing.
At the time of his alleged offer, Gensler was a professor of economics at Massachusetts Institute of Technology’s Sloan School of Management.
He took the helm at the SEC in 2021 and in recent months, has been highly critical of the crypto industry, putting several of the sector’s largest players in the commission’s cross hairs.
The Wall Street Journal reported in March, however, that Gensler had been approached by Binance for an advisorship, and that he declined. Gensler did, however, interview Zhao virtually for an MIT course on cryptocurrency, the publication reported.
The SEC did not return Banking Dive’s request for comment by press time.
A Wednesday court filing shed light on Binance’s connection to two now-defunct banks. Silvergate Bank, which began a voluntary wind-down March 8, facilitated more than $50 billion in deposits for Binance and companies related to it. Signature Bank, which was taken over by regulators March 12, handled more than $19 billion in such deposits.
The SEC filed a motion to freeze Binance.US’s assets Tuesday in an effort to protect the funds of domestic customers, and the above court documents were filed in support of that motion. It doesn’t include the purpose of the transfers, and a Binance.US spokesperson told The New York Times the transfers were done in the normal course of business and did not include client funds.
At times, the filing noted, “the amounts being credited and debited during a single month amounts to movement of more than a billion dollars.”
“For example, in July 2021, one Signature Bank Binance Holdings account shows a starting balance of $468 million, deposits of $1 billion, withdrawals of $1.3 billion, and an ending balance of $179 million. Incoming wires come from WorldPay and are paid out to Merit Peak, another Binance Holdings account and other assorted payments in wires ranging from $10 million to $100 million increments,” the filing said.
The “frequent large cash movement,” bank advisory firm Gallatin Group partner John Popeo told Bloomberg, “is a red flag.”
A court filing reported by The Wall Street Journal on Wednesday showed that Binance.US, however, was profoundly unprofitable last year. Binance.US lost $181 million in 2022, according to an SEC filing.
Binance and Zhao have long held that Binance.US, also known as BAM Trading, operates independently of the global exchange. However, within the SEC’s complaints Monday are allegations that Zhao secretly controls the operations of the Binance.US platform.
“What became clear to me at a certain point was CZ was the CEO of BAM Trading, not me,” former Binance.US CEO Brian Brooks said in published testimony, according to The Wall Street Journal.
Brooks, who once served as Acting Comptroller of the Currency, resigned from Binance.US just three months after taking the job.
Sens. Elizabeth Warren, D-MA, and Chris Van Hollen, D-MD, meanwhile, wrote a letter Thursday to U.S. Attorney General Merrick Garland asking the Department of Justice to investigate Binance and Binance.US for potentially making false statements to Congress about the nature of their businesses.
“In short, Binance and Binance.US made two representations to Congress: that Binance and Binance.US were ‘separate entities,' and that Binance.US ‘prioritized regulatory compliance’ and had ‘best-in-class compliance function.’ If the allegations in the SEC filing are accurate, then it would appear that neither of these claims are true,” wrote the senators.
“This is a serious matter. In this case, a bipartisan group of senators was seeking information on the cryptocurrency industry in order to inform an ongoing legislative process and determine whether new laws are needed to address the risks from cryptocurrencies and cryptocurrency exchanges — and it appears that Binance and Binance.US undermined this important investigation and the legislative process by providing false and misleading information to Congress,” they wrote. “These actions by Binance and Binance.US represent a potential violation of federal law that may subject company officials to fines and imprisonment, and the Department should, in conjunction with the ongoing SEC complaint, conduct a rapid and thorough investigation of this matter.”
