Jailed Crypto Boss Zhao to be Free in Sept With Over $33 Billion

Changpeng Zhao, founder and CEO of Binance crypto exchange, was sentenced to four months jail on Tuesday by a US District Court in Seattle. And that, by almost any standard, is a quite remarkable feat.

Zhao, who is still one of the crypto sector’s wealthiest and most influential figures, had the good sense to roll over and plead guilty to violating US bank secrecy laws against money laundering. He paid huge fines and apologized to the court for his offences.

It would hardly surprise that films are being planned about “CZ”, as he is known, because when emerges from prison in Seattle in late August or early September, the 47-year-old crypto whiz is still expected to have personal wealth of at least $33 billion (that was an estimate by Forbes early this year, although another billionaire’s index says he’s worth close to $43 billion).

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Either way, the Chinese-born Canadian businessman, who was a high-frequency trader on Wall Street before founding Binance in 2017, and his lawyers, have played their cards well.

The sentence imposed by US District Judge Richard Jones was significantly shorter than the three years sought by prosecutors, and below the maximum 18 months recommended under federal guidelines.

It was also far shorter than the 25 years behind bars that Sam Bankman-Fried received in March for stealing $8 billion from customers of his now-bankrupt FTX exchange. Bankman-Fried is appealing his conviction and sentence.

Prosecutors welcome short jail term

Curiously perhaps, prosecutors cheered the outcome of what had been a years-long investigation into Binance and Zhao, a multi-billionaire who had been living beyond US reach in the United Arab Emirates.

“This was an epic day,” US Attorney Tessa Gorman told reporters outside the courthouse. “Incarceration was critical in this case and we’re pleased with the result.”

Before handing down the sentence, the judge faulted Zhao for making Binance’s growth and profitability a higher priority than complying with US laws.

“You had the wherewithal, the finance capabilities, and the people power to make sure that every single regulation had to be complied with, and so you failed at that opportunity,” Jones said.

Zhao did not visibly react upon hearing his sentence.

He wore a navy blue suit and tie in the courtroom, with his mother and several other family members in attendance. Defence lawyers had requested probation.

I would like to thank everyone for your care and support, be it writing letters, showing support on X, or in any other form. They all mean a lot to me and keep me strong. I will do my time, conclude this phase and focus on the next chapter of my life (education).

I will remain a…

— CZ 🔶 BNB (@cz_binance) May 1, 2024

‘Crime pays’ – 100,000 suspicious transactions

“‘Crime pays’ is the message sent today,” Dennis Kelleher, head of the financial reform advocacy group Better Markets, wrote in an email to Reuters, noting Zhao will still get to keep his vast wealth.

That is hard to argue with, given the scale of offences Binance was accused of.

Prosecutors said the crypto exchange employed a “Wild West” model that welcomed criminals, and did not report more than 100,000 suspicious transactions with designated terrorist groups including Hamas, al-Qaeda and Islamic State.

They also said Zhao’s exchange supported the sale of child sexual abuse materials and received a large portion of ransomware proceeds.

Binance agreed to a $4.32 billion penalty, and Zhao paid a $50 million criminal fine plus $50 million to the US Commodity Futures Trading Commission.

“I’m sorry,” Zhao told the judge before being sentenced.

“I believe the first step of taking responsibility is to fully recognize the mistakes. Here I failed to implement an adequate anti-money laundering programme … I realize now the seriousness of that mistake.”

Much of Binance’s misconduct, including its weak money laundering controls, was first reported by Reuters.

Zhao will surrender voluntarily to serve his sentence, most likely at a detention centre near Seattle-Tacoma International Airport.

“Not prioritizing compliance is a few shades below criminal intent. It’s bad, but it’s below the usual requirement of specific intent” that would justify a years-long sentence, said Robert Frenchman, a lawyer specializing in white-collar crime.

But given the scale of Binance’s violations and the massive fines imposed, he should not have expected probation or home detention, Frenchman added.

Not a monster

Prosecutors had told the judge a tough sentence would send a clear signal to other would-be criminals.

“We are not suggesting that Mr Zhao is Sam Bankman-Fried or that he is a monster,” prosecutor Kevin Mosley said.

But Zhao’s conduct, he said, “wasn’t a mistake. This wasn’t a regulatory ‘oops’.”

Zhao stepped down as Binance’s chief in November, when he and the exchange admitted to evading money-laundering requirements under the Bank Secrecy Act.

In seeking probation, defence lawyers said others who admitted to similar wrongdoing, including BitMEX founder Arthur Hayes, were not locked up.

Zhao “wanted to make a difference in the world,” but made mistakes, defence lawyer Mark Bartlett said.

Jones said the three-year sentence requested by prosecutors was inappropriate because they did not show that Zhao knew in advance about illegal activity.

“It’s always the case the government asks for more than they think they’ll get,” said Frenchman. “Going that much above guidelines for a pleader is unusually aggressive.”

Several other crypto moguls are also in the crosshairs of US authorities after the collapse of crypto prices in 2022 exposed fraud and misconduct across the industry.