- Following enforcement actions by U.S. regulators, there’s been an exodus of top executives from Binance and Binance.US in recent months.
- There’s a good chance these executives could be convinced to cooperate with government agencies investigating the firms, experts say.
- In addition to enforcement actions by the SEC and CFTC, criminal charges against Binance and Binance.US may also be coming.
The recent exodus of Binance and Binance.US executives could become the latest legal headache for the crypto giants, both in their ongoing fights with regulators, and in possible criminal proceedings if federal law enforcement is able to secure a grand jury indictment.
When executives leave a company under investigation or enforcement action, they’re no longer covered by the same legal representation. And frequently their own lawyers will tell them the best way to stay out of prison or avoid a fine and banning from certain industries is to cooperate.
While declining to opine on the specific cases against Binance and Binance.US, Joe Whitley, a former US attorney and senior Justice Department official who now represents clients on white-collar matters as a partner at the law firm Womble Bond Dickinson, said it was “really concerning” when executives leave a company under investigation.
That’s because their personal lawyers will weigh whether the former executives should proactively reach out to the government and cooperate.
“There would be cause for concern about what they’re saying and doing, because if there’s damage that’s about to happen, they don’t want it to happen to them,” said Whitley.
Binance.US CEO Brian Shroder abruptly left the exchange earlier this month. His departure was followed shortly by that of the US exchange’s head of legal, Krishna Juvvadi, and its chief risk officer, Sidney Majalya.
Part of a recent dispute over whether or not Binance.US has followed an agreement between it and the SEC that kept the business operating related to an attempt to depose Shroder, among other company officers.
But even prior to that, 2023 saw a string of key executives leave Binance and Binance.US.
The SEC’s initial complaint against CEO and co-founder Changpeng “CZ” Zhao, Binance, and Binance.US unusually included depositions from two former Binance.US chief executives.
Other recently departed executives may be contemplating similar cooperation, said former SEC enforcement lawyer and federal attorney John Reed Stark.
“The executive departures are interesting and unprecedented,” said Stark. “When someone becomes an ex-employee it becomes a free-for-all to get that person as a witness,” especially for criminal prosecutions.
No criminal charges have been made against Binance, Binance.US, or their executives yet, though filings from the SEC and Commodity Futures Trading Commission allege unlawful behaviour that could lead to criminal indictments.
If a company is perceived to be in dire legal straits, there’s usually a rush to be at or near the front of the line to cooperate with authorities, said Stark, because prosecutors may need future witnesses less, and therefore those witnesses will have less leverage to seek lenient treatment.
Binance and Binance.US did not immediately reply to a request for comment for this article.
Are criminal charges coming?
Both the SEC and CFTC enforcement actions describe activities by Binance and Binance.US that would be illegal but outside their jurisdiction to enforce, if proven true.
That’s only added to the perception that Binance is also under criminal investigation in the US, as multiple public reports have suggested.
Details from the regulators’ filings also include quotes from executive communications about potential U.S.-sanctioned entities such as Hamas using the platform.
The filing and executive departures are the latest legal headache for Binance, and another datapoint suggesting that there could be more to come.
Those potential headaches include allegations, backed by bank account information, that Binance and Binance.US redirected customer assets to investment vehicles controlled by Zhao at a larger scale than the approximately $8 billion Sam Bankman-Fried and FTX are accused of fraudulently misappropriating.