Gary Gensler, Chairman of the SEC, was approached in 2018 and 2019 by crypto exchange Binance about hiring him. From sources that have emerged, it appears that he turned down the proposal and the job several times. Following are the details.
Summary
The SEC and Binance: a controversial relationship
Binance has emerged as one of the largest cryptocurrency exchanges since its inception in 2017. Over the years, the exchange has amassed millions of users spread across hundreds of countries.
It has also been one of the most robust cryptocurrency companies during the prolonged bear market of 2022. The SEC and Gary Gensler have recently intensified their scrutiny of the cryptocurrency realm.
However, Gary Gensler and Binance have a relationship that goes back a long way, even before Gensler was part of the SEC. In fact, according to a WSJ article, it turns out that the cryptocurrency exchange approached Gensler about becoming an advisor in 2018 and 2019.
Gensler, former chairman of the Commodity Futures Trading Commission, was approached by the cryptocurrency company in 2018 and 2019 while teaching at the Massachusetts Institute of Technology, the Journal reported.
Messages sent by Binance executives and viewed by the Journal indicate that Ella Zhang, then head of Binance’s venture investing department, and Harry Zhou, co-founder of the Koi Trading company that invests in Binance, met with Gensler in October 2018.
Once Gensler turned down the advisor position, Zhou wrote in the chat:
“I note that Gensler, while declining to become a consultant, was generous in sharing licensing strategies.”
According to a Binance employee, Gensler would likely return to a position as a regulator if the Dems won the 2020 elections. The second meeting took place in March 2019 in Tokyo between Gensler and Changpeng “CZ” Zhao, founder of Binance. In April 2021, Gensler became chairman of the SEC.
According to the newspaper, Gensler was approached by several private companies to serve as a consultant while he was at MIT, but declined all offers. The report highlights the relationship between Binance and its US department, Binance.US.
The SEC, Binance, and regulatory scrutiny of crypto
Fearing regulatory scrutiny, the exchange’s executives took steps years ago to mitigate risk, such as creating a US entity that would attract oversight and regulatory investigations, thereby shielding Binance from regulatory oversight.
During a presentation entitled “Insulate Binance from US Enforcement,” employees suggested that Binance should have a “purely contractual” relationship with the US entity, considering it a separate business.
A Binance spokesperson stated the following in this regard:
“When Binance.US was founded, there was an agreement with the Binance.com technology team to build the technology infrastructure and provide other forms of support for the new US-regulated exchange. It was a white label service that supported other exchanges. That’s why you find these old communications between members of the two organizations.”
The crypto exchange also pointed out that Binance and Binance.US share the same ultimate beneficial owner, a fact known to the public from the beginning. However, Binance.US recently went through a funding round, while Binance.com did not.
In addition, Binance clarified that it has no US customers and that the companies are separate legal entities. The exchange also acknowledged that it has made missteps during its expansion, stating the following:
“Growing at such a rapid pace, we made some initial missteps which have now been corrected. We’ve invested heavily in compliance talent, processes and technologies over the last couple of years, and today we’re a very different company when it comes to compliance.”
Binance is reportedly preparing to face fines and penalties to resolve regulatory issues and law enforcement investigations in the United States.
Patrick Hillmann, chief strategy officer at Binance, said the company is working with regulators to remedy past compliance issues. According to the company, its compliance and investigation staff increased by 500% last year.
Ongoing investigations between Binance and US regulators
The world’s largest digital asset exchange, Binance, is preparing to face fines and penalties in order to resolve ongoing regulatory and judicial investigations in the United States.
According to a 15 February WSJ article quoting the company’s chief strategy officer, Patrick Hillmann, Binance is reportedly committed to working with regulators to resolve compliance issues found in the past.
Hillmann said that Binance is working with regulators in an effort to understand what measures should be taken now to remedy the situation.
In addition, he added that the outcome of the ongoing investigations will likely consist of monetary penalties, but that they may also include something more, stating that it is up to the regulators to decide.
Binance has been the subject of several investigations in the United States, including one initiated in 2018 by the Department of Justice for potential violations of anti-money laundering laws. In March 2021, the Commodity Futures Trading Commission also investigated whether the company had offered crypto derivatives to US customers without registering with the agency.
The SEC’s investigation against Binance: the details
The Securities and Exchange Commission also launched an investigation into the US division of Binance last February in connection with trading companies linked to CEO Changpeng Zhao.
Hillmann added that Binance is very confident and optimistic about the trading performance, but without being able to quantify the size of the fines or the timing of dispute resolution with US regulators.
In any case, the SEC has recently intensified what industry analysts call a “war on cryptocurrencies,” which appears to be targeting certain staking services and stablecoins it has deemed to fall under securities laws.
Referring to the recent enforcement activity, the Binance executive said it could cause a really significant and lasting crippling effect in the United States.
Around mid-February, New York regulators applied a crackdown on Paxos, preventing it from issuing any more of Binance’s BUSD stablecoins.
In February, US crypto exchange Kraken was also fined $30 million and ordered to suspend its staking services following an SEC enforcement action.
Patrick Hillmann concluded that resolving the problems with US regulators would be good for the company and its future.
