• Gensler and Binance CEO Zhao have a history, according to the exchange's lawyers
  • Gensler is said to have interviewed CZ in 2019 as part of the cryptocurrency course he was teaching at MIT
  • The SEC headed by Gensler has filed 13 charges against Binance

Lawyers of Binance, the world's largest centralized cryptocurrency exchange platform by trading volume and the crypto empire currently under fire because of the latest regulatory action from the U.S. Securities and Exchange Commission (SEC), suggested that because of the history of the agency's chair Gary Gensler and the crypto company, its CEO and executives, the regulator's chairman should be recused from the case.

This week, the Wall Street major regulator dropped a series of charges against major crypto exchange platforms in the country, Binance.US and Coinbase, which shook the emerging industry and spooked the market. The financial regulator filed 13 charges against Binance.

Prices of crypto assets immediately plummeted and while they eventually recovered, it created confusion, anxiety and distrust toward the crypto business.

In what seemed like a standard legal procedure following a lawsuit, lawyers at Gibson Dunn and Latham & Watkins, law firms representing Binance, filed a letter to the court exposing the history of Gensler and Binance executives, including its CEO Changpencg Zhao (CZ).

The bombshell included in the letter surprised the crypto community and the broader financial industry since it was revealed earlier this year that Binance courted Gensler sometime in 2019 to be one of its advisors, disclosing several instances where the current SEC chairman tried to cozy up with Binance and its CEO.

The letter, sent via electronic mail to the SEC on June 4 and filed at the U.S. District Court of the District of Columbia, on June 6, revealed that Gensler himself was the one who offered to serve as an advisor to the crypto exchange platform in several conversations that happened in March 2019.

Following the conversation, Gensler allegedly met with CZ in Japan for lunch, where both talked about the platform's Binance Coin (BNB) and the company's plan of opening an exchange in the U.S.

Moreover, the letter claimed that Gensler and CZ remained in touch even after that lunch meeting in Japan, adding that the SEC chair, who was at the time teaching at Massachusetts Institute of Technology's Sloan School of Management, even offered to serve as the company's informal advisor.

"In March2019, he also met Mr. Zhao for an in-person lunch meeting in Japan, during which they discussed the BNB token, the prospect of BHL establishing a U.S.-based exchange, and other topics. Mr. Zhao and Mr. Gensler remained in touch after that meeting, and Mr. Zhao understood that the now-Chairman was comfortable serving as an informal advisor," the letter read.

Interestingly, the letter also revealed that at the request of Gensler, CZ sat down for an interview with him as part of the cryptocurrency course he was teaching at MIT at the time.

"At Mr. Gensler's request, Mr. Zhao was interviewed for Mr. Gensler's cryptocurrency course at the Massachusetts Institute of Technology," the letter stated.

But that's not all.

The Binance lawyers, in an attempt to paint the picture of the relationship between Gensler and CZ, claimed that the SEC chair, prior to his scheduled appearance before the House Financial Services Committee to testify over Facebook's proposed currency Libra and its planned Calibra wallet, had sent Zhao a copy of his intended testimony ahead of the scheduled hearing.

"Later in 2019, when Mr. Gensler was asked to appear before the House Financial Services Committee to testify on cryptocurrency matters, he sent Mr. Zhao his intended testimony a day before the scheduled hearing," the letter read.

"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. To date, the Staff has never confirmed whether Mr. Gensler has recused himself, and if he has not, the Commission's explanation for why not. We remain deeply troubled by this history and the Staff's refusal to acknowledge it, which compounds our concern about the course of action threatened by the Staff in this matter," the lawyers further said in the letter.

At the time, during his testimony, Gensler told the House based on his prepared testimony, "I do not advise any financial, technology, blockchain or other companies, nor do I own any cryptocurrencies."

"The Chair is very familiar with and in full compliance with his ethical obligations including any recusal obligations," a spokesperson of the SEC told CNBC in a statement about the issue surrounding Gensler's alleged relationship with Binance and its executives, including CZ.

Securities and Exchange Commission chief Gary Gensler, pictured on September 14, 2021, said the US financial system is more resilient than it was during the last financial crisis in 2008
Securities and Exchange Commission chief Gary Gensler, pictured on September 14, 2021, said the US financial system is more resilient than it was during the last financial crisis in 2008 POOL / EVELYN HOCKSTEIN