Week In Crypto: Binance US CEO Quits Amid SEC Discovery Battle

September 15, 2023
Binance US loses another CEO and more than 100 employees, a crypto co-founder is sentenced to 20 years in prison, and the UK’s new crypto promotion rules may have claimed their first victim.

Binance US loses another CEO and more than 100 employees, a crypto co-founder is sentenced to 20 years in prison, and the UK’s new crypto promotion rules may have claimed their first victim.

The CEO of Binance US has quit the company at a key moment in its battle against the Securities and Exchange Commission (SEC), with the head of legal and chief risk officer both following in his footsteps.

Brian Shroder, who joined Binance US as president in September 2021, was made CEO one month later following the surprise resignation of Brian Brooks.

Brooks had spent only three months as CEO and has since provided testimony to the SEC, during which he complained of unauthorised interference in the US company by global CEO Changpeng Zhao.

On Tuesday (September 12), just as Shroder’s resignation was about to hit the headlines, Binance US also requested a motion to block the SEC from deposing Shroder.

Known as a protective order, the move seeks to prevent the SEC from asking further questions of Shroder related to the custody of Binance US customer assets.

In the 24-page order, the defendants note that they have already provided more than 5,000 pages of documents and answered 19 interrogatories from the SEC.

They also add that they have made multiple employees available for depositions, including Erik Kellogg, chief information security officer (CISO).

The defendants therefore claim that Shroder has no “unique knowledge” of Binance US custody practices that has not already been provided to the SEC.

The same argument is made in relation to Jasmine Lee, chief financial officer, who joined Binance US two months before Shroder.

“The burden imposed by these depositions far outweighs their potential benefit, and the discovery sought is disproportionate to the needs contemplated,” the order reads. 

John Reed Stark, former head of enforcement at the SEC, said that during his 20 years at the agency he cannot recall a single case of a court denying the SEC the opportunity to depose a CEO or CFO.

He added that Shroder's departure creates an opportunity for the SEC and the US Department of Justice (DOJ) to secure Shroder’s cooperation, especially if he is “fearful” of prosecution or “disgruntled”.

“The DOJ could take advantage and secure Shroder’s cooperation in secret,” he said. “This is an investigative strategy that it has undoubtedly already taken with respect to other former Binance employees.”

Executive exodus and staff floor clear-out

In a Bloomberg report on Shroder’s resignation, a Binance US spokesperson also confirmed that the company is planning to cut more than 100 staff.

Explaining the rationale for the cuts, the spokesperson pinned the blame squarely on the SEC and its perceived unfair treatment of the crypto industry.

“The SEC’s aggressive attempts to cripple our industry and the resulting impacts on our business have real-world consequences for American jobs and innovation, and this is an unfortunate example of that," the spokesperson said.

According to its LinkedIn profile, Binance US currently has 471 employees, but this is the second round of layoffs the company has announced since the SEC filed charges against it in June.

Almost immediately after the lawsuit was opened, two sources contacted Reuters saying that Binance US had announced internally that 50 staff would be cut.

Reuters was unable to verify the exact number, but if true, it would mean that Binance US will shed about one-third of its staff this year.

As covered by Vixio, this is in addition to the executive exodus from Binance.com, whose chief strategy officer, global head of product and SVP of compliance have quit over the previous months.

20-year sentence for OneCoin co-founder

A co-founder of one of crypto’s most notorious scam coins has been sentenced to 20 years in prison by a judge in the Southern District of New York.

Karl Greenwood, 46, was found guilty of operating one of the “largest fraud schemes ever perpetrated”, after millions of victims invested more than $4bn in his OneCoin Ponzi scheme.

Greenwood was arrested on the island of Koh Samui, Thailand, in July 2018, and was extradited to the US to face fraud and money laundering charges in October of that year.

Ruja Ignatova, 43, the other co-founder and public face of OneCoin, is still at large, and has been on the FBI’s Top Ten Most Wanted List since June 2022.

Nicknamed the "Crypto Queen", Ignatova is known to have boarded a commercial flight from Sofia to Athens in October 2017, but has not been seen since.

Bybit may exit UK due to new FCA promotions rules

Bybit, a major exchange headquartered in Dubai, has said it may have to withdraw from the UK market due to new rules on crypto-asset promotions.

On October 8, the Financial Conduct Authority (FCA) will introduce “tough” new rules that will regulate how crypto firms communicate their offerings to customers and prospects.

These include mandated features such as 24-hour cooling periods, personalised risk warnings, and client categorisation and appropriateness assessments.

Ben Zhou, co-founder and CEO of Bybit, said the company had found it difficult to comply with the FCA’s guidance on the use of English-language promotions, whereby any promotion written in English can be deemed a solicitation of UK customers.

“Regarding the UK’s new crypto regulation, we are in talks with the regulator to find the best solution moving forward,” he said.

“No final agreement has been made yet, and we will keep our communities informed.”

So far this year, Bybit has exited both Canada and France following the introduction of new rules for crypto firms.

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