1 00:00:00,080 --> 00:00:03,320 Speaker 1: The US Securities An Exchange Commission is suing Binance. It 2 00:00:03,320 --> 00:00:07,520 Speaker 1: accuses the company of mishandling customer funds, breaking securities rules, 3 00:00:07,760 --> 00:00:11,800 Speaker 1: and misleading investors and regulators. On the heels of that news, 4 00:00:11,840 --> 00:00:14,760 Speaker 1: we have an interview with the chair of the sec 5 00:00:15,400 --> 00:00:19,080 Speaker 1: Gary Gensler, sets down to discuss the situation with Bloomberg's 6 00:00:19,160 --> 00:00:19,759 Speaker 1: David Weston. 7 00:00:20,079 --> 00:00:21,880 Speaker 2: Given all the allegations you brought in you one hundred 8 00:00:21,920 --> 00:00:26,320 Speaker 2: physix page complaint against Finance and c JIAU, A lot 9 00:00:26,360 --> 00:00:28,880 Speaker 2: of these things are things we've seen in other forms 10 00:00:28,960 --> 00:00:31,960 Speaker 2: without crypto. Is this a crypto cases, ceter Is this 11 00:00:32,040 --> 00:00:34,000 Speaker 2: a pretty straightforward securities case? 12 00:00:35,520 --> 00:00:36,480 Speaker 3: You raise a good question. 13 00:00:36,520 --> 00:00:41,159 Speaker 4: This is actually a straightforward securities case. But it's in 14 00:00:41,200 --> 00:00:46,240 Speaker 4: the context of crypto, and let me just say, crypto tokens. 15 00:00:46,720 --> 00:00:51,120 Speaker 4: The investing public needs that same disclosure, a full, fair 16 00:00:51,200 --> 00:00:52,880 Speaker 4: and truthful disclosure, we say. 17 00:00:53,479 --> 00:00:55,440 Speaker 3: And in the crypto space. 18 00:00:55,680 --> 00:00:59,680 Speaker 4: It's largely built on a business model that's non compliant 19 00:00:59,680 --> 00:01:03,240 Speaker 4: with the securities laws. People are co mingling all of 20 00:01:03,280 --> 00:01:06,120 Speaker 4: the customer funds there. It would be as if the 21 00:01:06,160 --> 00:01:09,960 Speaker 4: New York Stock Exchange is also operating a hedge fund 22 00:01:10,120 --> 00:01:15,080 Speaker 4: and trading against their customers, or add to it that 23 00:01:15,120 --> 00:01:18,440 Speaker 4: they don't have proper controls to avoid manipulative trading on 24 00:01:18,480 --> 00:01:22,080 Speaker 4: the platform by their sister So here Binance at a 25 00:01:22,160 --> 00:01:28,880 Speaker 4: sister organization controlled by mister Zoo called Sigma Chain. So absolutely, 26 00:01:29,040 --> 00:01:33,160 Speaker 4: it's straightforward protect the public through the securities law, build 27 00:01:33,240 --> 00:01:37,240 Speaker 4: confidence and trust. But it's in the context of crypto. 28 00:01:37,680 --> 00:01:40,679 Speaker 2: You have said elsewhere that there are certain customer rules 29 00:01:40,680 --> 00:01:43,120 Speaker 2: here that register financial advisors have to pay attention to 30 00:01:43,280 --> 00:01:45,560 Speaker 2: when it's something like Binance, Are you looking at some 31 00:01:45,600 --> 00:01:47,520 Speaker 2: of those financial advisors for possible violations. 32 00:01:47,920 --> 00:01:50,360 Speaker 4: Well, I'm not going to get into any one investigation 33 00:01:50,560 --> 00:01:54,600 Speaker 4: or case that we haven't yet brought, but I would 34 00:01:54,640 --> 00:01:57,880 Speaker 4: say this to all of those investment advisors out there 35 00:01:58,080 --> 00:02:01,880 Speaker 4: that may be interested in trading and crypto, your client 36 00:02:02,040 --> 00:02:08,000 Speaker 4: funds under an existing two thousand and nine rule have 37 00:02:08,160 --> 00:02:13,240 Speaker 4: to be proper qualified custodians, and that's not what you 38 00:02:13,440 --> 00:02:19,200 Speaker 4: have on Binance. Make no mistake in fact, as we 39 00:02:19,320 --> 00:02:24,400 Speaker 4: alleged your funds and custody at Binance, you don't even 40 00:02:24,440 --> 00:02:28,720 Speaker 4: know really who's where it is. You know that mister 41 00:02:28,840 --> 00:02:32,200 Speaker 4: Zoo ultimately is controlling it, but it may have actually 42 00:02:32,240 --> 00:02:35,400 Speaker 4: moved it to a sister organization. There's another one that 43 00:02:35,440 --> 00:02:38,720 Speaker 4: we allege merrit Peak that billions of dollars of funds 44 00:02:38,760 --> 00:02:39,320 Speaker 4: we're moving to. 45 00:02:40,040 --> 00:02:42,280 Speaker 2: So that is another question about the extent of which 46 00:02:42,320 --> 00:02:45,359 Speaker 2: what you're seeing with respect to binance, mister Zao may 47 00:02:45,400 --> 00:02:48,840 Speaker 2: well apply to other companies doing similar things. Do you 48 00:02:48,880 --> 00:02:52,040 Speaker 2: have similar customing problems with other people dealing with crypto? 49 00:02:52,080 --> 00:02:54,600 Speaker 2: Obviously this is the largest exchange there is, but other 50 00:02:54,840 --> 00:02:56,000 Speaker 2: similar entities. 51 00:02:56,520 --> 00:02:59,200 Speaker 4: I would say this it may be the largest exchange 52 00:02:59,280 --> 00:03:04,880 Speaker 4: because well that they had corrupted their trading volumes by 53 00:03:05,280 --> 00:03:08,399 Speaker 4: a lack of risk controls about their affiliate Sigma Chain 54 00:03:08,520 --> 00:03:12,480 Speaker 4: and wash trading. But moving on to your question, there 55 00:03:12,520 --> 00:03:18,440 Speaker 4: are challenges of custody throughout this space. And secondly, there's 56 00:03:18,480 --> 00:03:22,880 Speaker 4: a business model that bundles and commingles functions that we 57 00:03:23,120 --> 00:03:29,240 Speaker 4: don't see nor would we allow elsewhere in finance. And 58 00:03:29,320 --> 00:03:35,280 Speaker 4: so there's parallels here to the FTX of fraud manipulation 59 00:03:35,400 --> 00:03:39,720 Speaker 4: that we saw and we allege against Sam Bankman Freed 60 00:03:39,840 --> 00:03:46,000 Speaker 4: where he had sister organization Alameda, and the special arrangements 61 00:03:46,040 --> 00:03:52,160 Speaker 4: with that trading platform FTX. You see platform after platform 62 00:03:52,640 --> 00:03:57,280 Speaker 4: that the entrepreneurs behind the platform also are trying to 63 00:03:57,320 --> 00:04:03,600 Speaker 4: build wealth for themselves and their investment through sister organizations, 64 00:04:03,720 --> 00:04:09,680 Speaker 4: hedge funds, trading against the customers, or even even as 65 00:04:09,720 --> 00:04:13,280 Speaker 4: it relates to where there might not be a sister 66 00:04:13,440 --> 00:04:17,800 Speaker 4: organization that they're dealing against their customers. 67 00:04:18,080 --> 00:04:20,039 Speaker 2: Given what you just said that you've seen this in 68 00:04:20,080 --> 00:04:23,320 Speaker 2: the business models, not just of finance but elsewhere. What 69 00:04:23,360 --> 00:04:25,720 Speaker 2: does this mean for the crypto industry more broadly? 70 00:04:26,400 --> 00:04:28,960 Speaker 4: Look, I think the crypto industry more broadly, if it's 71 00:04:28,960 --> 00:04:33,000 Speaker 4: going to have any success going forward, has to come 72 00:04:33,080 --> 00:04:40,480 Speaker 4: into compliance with basic public policy about disclosure, about avoiding conflicts, 73 00:04:40,600 --> 00:04:47,840 Speaker 4: about segregating properly segregating customer funds, and guarding against fraud manipulation. 74 00:04:48,400 --> 00:04:54,159 Speaker 4: Without that, this whole area stands the chances collapsing like 75 00:04:54,200 --> 00:04:59,039 Speaker 4: a house of cards. And look, there's legitimate questions out there, 76 00:04:59,279 --> 00:05:02,120 Speaker 4: what even might be the value of the individual tokens. 77 00:05:02,120 --> 00:05:07,520 Speaker 4: We're merit neutral, but we're not public policy neutral. The 78 00:05:07,560 --> 00:05:11,760 Speaker 4: business models need to adjust to come into compliance, and 79 00:05:11,800 --> 00:05:15,039 Speaker 4: that may be hard work, but it's going to promote 80 00:05:15,720 --> 00:05:20,920 Speaker 4: trust in this field, which otherwise it's just as I've 81 00:05:21,000 --> 00:05:23,479 Speaker 4: often said, it's a wild West and a bunch of 82 00:05:23,520 --> 00:05:24,719 Speaker 4: casino operators. 83 00:05:25,839 --> 00:05:28,560 Speaker 2: In your complaint, you name specifically some tokens that you 84 00:05:28,560 --> 00:05:32,120 Speaker 2: say are unregistered securities. I assume that that's not a 85 00:05:32,160 --> 00:05:33,599 Speaker 2: complete list. Are you going to come up with a 86 00:05:33,600 --> 00:05:36,200 Speaker 2: complete list? Are you going to do this by enforcement action? 87 00:05:36,360 --> 00:05:38,760 Speaker 2: Or might there be a regulatory statement? These are all 88 00:05:38,839 --> 00:05:42,520 Speaker 2: of the cryptos that we think our securities their subject 89 00:05:42,520 --> 00:05:43,000 Speaker 2: of regulation. 90 00:05:43,560 --> 00:05:46,680 Speaker 4: Number one, we've already had those regulatory statements and there 91 00:05:46,720 --> 00:05:50,839 Speaker 4: by Congress and the US Supreme Court, and an investment 92 00:05:50,960 --> 00:05:54,760 Speaker 4: contract is one of thirty terms in the definition of 93 00:05:54,800 --> 00:06:00,359 Speaker 4: securities and is Thirdgod Marshall, a famous just to the 94 00:06:00,360 --> 00:06:05,640 Speaker 4: Supreme Court said, Congress painted with a broadbrush. We've Secondly, yes, 95 00:06:05,760 --> 00:06:08,480 Speaker 4: we've brought enforcement actions well over one hundred, and we've 96 00:06:08,480 --> 00:06:12,640 Speaker 4: been clear whether it's settled or litigated actions, and courts 97 00:06:12,680 --> 00:06:16,279 Speaker 4: have seen us lay out the facts to the public 98 00:06:17,200 --> 00:06:20,719 Speaker 4: that most of these come under the securities laws. 99 00:06:20,760 --> 00:06:23,400 Speaker 3: And it comes down to this, David. The public is 100 00:06:23,440 --> 00:06:24,040 Speaker 3: relying on. 101 00:06:24,000 --> 00:06:26,600 Speaker 4: A group of entrepreneurs in the middle, and they're looking 102 00:06:26,640 --> 00:06:29,000 Speaker 4: at the Twitter feeds, they're looking at the websites, and 103 00:06:29,120 --> 00:06:32,320 Speaker 4: these are the same entrepreneurs that are hiring lawyers to 104 00:06:32,400 --> 00:06:36,720 Speaker 4: try to thwart the investor production we're talking about, So 105 00:06:37,200 --> 00:06:41,400 Speaker 4: I think that the rules and the regulations are already clear. 106 00:06:41,880 --> 00:06:44,960 Speaker 2: To what extent, mister Chair. As our coordination within the 107 00:06:45,040 --> 00:06:48,240 Speaker 2: US government, the CFTC went after Binance back in March. 108 00:06:48,279 --> 00:06:50,320 Speaker 1: As I recall, there's talk. 109 00:06:50,200 --> 00:06:52,440 Speaker 2: About maybe the DOJ the one hundred Justice looking at 110 00:06:52,440 --> 00:06:54,400 Speaker 2: as well. Are you coordinating behind the scenes. 111 00:06:55,960 --> 00:06:59,280 Speaker 4: Again, I can't go it to any specifics, but we 112 00:06:59,440 --> 00:07:03,080 Speaker 4: do work with our federal law enforcement partners. In the 113 00:07:03,320 --> 00:07:08,600 Speaker 4: coinbase filing this morning, we worked with ten states across 114 00:07:08,640 --> 00:07:13,840 Speaker 4: this great nation, including Alabama and California and eight others. 115 00:07:13,880 --> 00:07:18,040 Speaker 4: So we coordinate and have brought an action on coinbase 116 00:07:18,120 --> 00:07:22,840 Speaker 4: with ten states, and we work with the CFTC went appropriate. 117 00:07:22,880 --> 00:07:27,720 Speaker 4: We worked with the Justice Department, whether it's around the 118 00:07:27,880 --> 00:07:32,960 Speaker 4: FTX fraud and manipulation charges. We've worked with other law 119 00:07:33,040 --> 00:07:38,280 Speaker 4: enforcement partners around something called Terra Luna you might remember 120 00:07:38,320 --> 00:07:43,440 Speaker 4: about a year ago that blew up and Do Kwan 121 00:07:43,560 --> 00:07:47,760 Speaker 4: the individual behind that. So we've got good working relationships. 122 00:07:47,800 --> 00:07:50,560 Speaker 4: I couldn't be prouder though, of our enforcement staff at 123 00:07:50,600 --> 00:07:56,640 Speaker 4: the SEC and working collaboratively across our agency inside the SEC. 124 00:07:57,000 --> 00:07:59,720 Speaker 2: I'm curious, mister Chair, looking at the complaint. You've asked 125 00:07:59,760 --> 00:08:04,040 Speaker 2: for a permanent injunction, you've asked for disgorgement. They'll gotten gained. 126 00:08:04,480 --> 00:08:06,080 Speaker 2: You have not, as far as I can tell, gone 127 00:08:06,080 --> 00:08:08,960 Speaker 2: for temporary restraining order. Why haven't you tried to shut 128 00:08:09,000 --> 00:08:09,760 Speaker 2: it down immediately? 129 00:08:10,480 --> 00:08:13,720 Speaker 4: I think, as we said in our filing yesterday, that 130 00:08:13,760 --> 00:08:18,640 Speaker 4: we thought it was appropriate and to file with regard 131 00:08:18,720 --> 00:08:22,280 Speaker 4: to an asset freeze. And there really are concerns here, David, 132 00:08:22,760 --> 00:08:28,560 Speaker 4: on the finance platforms and the movements of money as 133 00:08:28,560 --> 00:08:31,600 Speaker 4: to what's really behind the curtain here. And we know 134 00:08:31,720 --> 00:08:35,720 Speaker 4: mister Zal controls it all. We know that investors were 135 00:08:35,760 --> 00:08:40,520 Speaker 4: misled about the risk controls and that they concealed an 136 00:08:40,559 --> 00:08:43,679 Speaker 4: awful lot from the investing public about where their funds 137 00:08:43,679 --> 00:08:47,319 Speaker 4: and custody was held, and really saw it actively to 138 00:08:48,000 --> 00:08:49,200 Speaker 4: evade US law. 139 00:08:49,720 --> 00:08:51,920 Speaker 2: But why aren't you shutting it down right now? Why 140 00:08:51,960 --> 00:08:53,640 Speaker 2: aren't you asking for a temporary restraining. 141 00:08:53,440 --> 00:08:55,839 Speaker 3: Order that takes work with court? 142 00:08:55,920 --> 00:08:56,240 Speaker 1: David? 143 00:08:56,679 --> 00:08:59,160 Speaker 2: Okay, fair enough. Let me ask you. You're concerned it 144 00:08:59,200 --> 00:09:02,320 Speaker 2: all about large repercussions throughout the crypto industry that given 145 00:09:02,360 --> 00:09:05,000 Speaker 2: the size at least, as you say, the reported size 146 00:09:05,040 --> 00:09:07,840 Speaker 2: at least to finance that this could lead to a 147 00:09:07,880 --> 00:09:11,240 Speaker 2: widespread sort of dislocation within the crypto industry. 148 00:09:11,800 --> 00:09:19,439 Speaker 4: Right now, the industry is dislocating American public's money, and frankly, 149 00:09:19,480 --> 00:09:22,240 Speaker 4: there's too many frauds and scams and too much high 150 00:09:22,320 --> 00:09:28,520 Speaker 4: picking the pockets of the American public. So I'm just, frankly, 151 00:09:28,800 --> 00:09:33,560 Speaker 4: what I'm deeply worried about is an ongoing sector of 152 00:09:33,600 --> 00:09:37,800 Speaker 4: our capital markets that undermines the trust in the capital markets. 153 00:09:38,280 --> 00:09:41,800 Speaker 4: It's not only that people are losing money in bankruptcies 154 00:09:41,800 --> 00:09:47,160 Speaker 4: and scams and huckster and flim flam artists, but it's 155 00:09:47,280 --> 00:09:52,920 Speaker 4: also about undermining that which really is part of our 156 00:09:52,960 --> 00:09:57,480 Speaker 4: whole economic success one hundred trillion dollar capital markets. Why 157 00:09:57,559 --> 00:10:01,679 Speaker 4: should the New York Stock Exchange or broker dealers that 158 00:10:01,840 --> 00:10:05,920 Speaker 4: we all know and respect undermined by this other corner 159 00:10:05,960 --> 00:10:10,480 Speaker 4: of the capital markets, which is sort of sort of 160 00:10:10,520 --> 00:10:14,800 Speaker 4: saying thumbing their nose and saying catch us if you can. 161 00:10:16,120 --> 00:10:18,640 Speaker 2: Finally, mister chair, I mean, you obviously know a lot 162 00:10:18,679 --> 00:10:20,679 Speaker 2: about finance, your colleagues have really spent a lot of 163 00:10:20,760 --> 00:10:23,440 Speaker 2: time going through it, and you're not asking for dissolution 164 00:10:23,520 --> 00:10:25,840 Speaker 2: of the company. But from what you've seen are though, 165 00:10:26,080 --> 00:10:29,120 Speaker 2: is the wrongdoing that you've identified in your complaint. Is 166 00:10:29,160 --> 00:10:31,720 Speaker 2: it so inherent to the operation that as a practice 167 00:10:31,720 --> 00:10:33,120 Speaker 2: mat or finance really can't survive. 168 00:10:33,800 --> 00:10:36,280 Speaker 3: Look, it needs to come into compliance. 169 00:10:36,960 --> 00:10:41,120 Speaker 4: I would definitely say in the investing public, beware those 170 00:10:41,200 --> 00:10:44,120 Speaker 4: investment advisors that are registered with US it's not a 171 00:10:44,200 --> 00:10:45,479 Speaker 4: qualified custodian. 172 00:10:45,840 --> 00:10:49,600 Speaker 3: But everyone else as well, beware. 173 00:10:49,080 --> 00:10:53,120 Speaker 4: About your funds on that platform when there's been such 174 00:10:53,160 --> 00:10:59,800 Speaker 4: a really extensive web of deception and concealment and efforts 175 00:10:59,800 --> 00:11:04,240 Speaker 4: to the law, both on the US platform the international 176 00:11:04,280 --> 00:11:09,280 Speaker 4: platform that has been offered to US investors and all 177 00:11:09,320 --> 00:11:12,600 Speaker 4: built all built on a set of tokens. I mean, 178 00:11:12,720 --> 00:11:17,080 Speaker 4: what really stands behind their own binance tokens, BnB and 179 00:11:17,120 --> 00:11:20,320 Speaker 4: the like, And what if you can sort of say, 180 00:11:20,360 --> 00:11:23,680 Speaker 4: what is the economic rationale if you're an investor for 181 00:11:23,840 --> 00:11:27,240 Speaker 4: some of these tokens that Binances behind. 182 00:11:27,800 --> 00:11:31,720 Speaker 1: That's SEC chair Gary Gensler speaking with Bloomberg's David Weston. 183 00:11:31,920 --> 00:11:35,920 Speaker 1: For more interviews like this, subscribe to the Bloomberg Talks podcast, 184 00:11:36,200 --> 00:11:40,559 Speaker 1: available on Apple, Spotify, and anywhere else you get your podcasts.