Author: Olga Kharif, Muyao Shen, Bloomberg; Translated by: Deng Tong, Golden Finance
According to the U.S. government, “it is better to seek forgiveness than permission” when it comes to complying with the law, the billionaire founder of the Binance cryptocurrency exchange has told his team.
Now it’s time for Zhao Changpeng to ask for clemency, but prosecutors are in no mood to grant it. In a court filing ahead of Tuesday’s sentencing hearing, they cited the flippant attitude he displayed in that and other remarks as one of the reasons they recommended the court sentence him to three years in prison — longer than guidelines would dictate — if he is found guilty of violating anti-money laundering laws, which he pleaded guilty to in November.
If a Seattle judge agrees with prosecutors and orders him jailed, Zhao will go down in history as the richest person ever to serve time in a U.S. federal prison, as his ownership of Binance and the estimated $43 billion in personal wealth associated with it remain intact. His wealth could grow even more as Binance’s business accelerates during cryptocurrency’s latest bull run. Although Zhao gave up his CEO title as part of his agreement with the government, his lingering influence on the company cannot be ignored: The new board is dominated by his loyal friends, and the mother of his three children plays a major role in its operations.
Needless to say, the arrangement with the DOJ does not satisfy some critics of the cryptocurrency market.
Changpeng Zhao leaves federal court in Seattle on November 21 after pleading guilty in a deal with the U.S. government. Photo: Chloe Collyer/Bloomberg
“The Justice Department should prosecute dozens of people associated with Binance and not only prosecute and punish them, but also ban them from the financial industry forever,” said Dennis Kelleher, president and CEO of advocacy group Better Markets Inc. “He won’t punish others, and he deserves the harshest sanctions possible.”
Zhao Changpeng also agreed to pay a $50 million personal fine. Binance itself agreed to a $4.3 billion fine to settle a case involving a stunning array of allegations related to violations of anti-money laundering and sanctions laws, including the U.S. Treasury Department’s claim that the exchange failed to prevent and report suspicious transactions from Hamas, al-Qaeda, and other groups designated as terrorist organizations by the United States. In asking for a three-year prison sentence, U.S. Attorney Tessa M. Gorman and her fellow prosecutors cited the “tremendous” consequences of Zhao Changpeng’s misconduct and what she called “significant harm to the national security of the United States.”
Yet despite the severity of the charges and the guilty pleas by Binance and its former leaders, the company built by Zhao is thriving and its status as the most important cryptocurrency exchange has withstood the test. The business, which earns fees from customer trades, is often a money-printing machine during booms like this one, with bitcoin hitting a record high last month as investors rushed back into the market following the launch of the U.S. exchange.
Despite its decline in dominance, Binance still maintains its market share lead in spot and derivatives cryptocurrency markets. The company said it added more than 40 million new users in 2023, up 30% from the previous year. Customers' holdings on the exchange have grown to more than $100 billion. Bloomberg estimates that the company's annualized revenue could reach $9.8 billion in the 12 months ending in March.
“Things like ETFs are actually helping drive that activity,” Andy Goldin, Binance’s global head of data and analytics, said in a March interview. “More institutional trading activity is really driving that right now.”
Binance is holding out in large part because traders view the company and Zhao very differently than its onetime nemesis FTX, which went bankrupt after founder Sam Bankman-Fried illegally misappropriated billions of dollars worth of user cryptocurrency. Following his conviction, SBF was sentenced to 25 years in prison, and his net worth is currently estimated at $0. Deceiving customers about the use of their funds is not one of the crimes the Justice Department has accused Binance of.
The different outcomes for SBF and CZ reflect the two men’s very different operating styles. After his crypto empire collapsed, SBF embarked on a chaotic effort to talk his way out of trouble by tweeting and even failing in his attempts to testify in his own defense at trial. CZ, on the other hand, pleaded guilty, cooperated with the government, and remained tight-lipped. Even their signature hairstyles offer a symbolic contrast: SBF is known for his long, unruly curls, while CZ sports shoulder-length hair that looks like it would be at home in boot camp.
Most importantly, unlike FTX, Binance is well-positioned to handle the impulses of hot-money crypto traders, who tend to pull funds from exchanges at any sign of trouble, such as the Terra UST stablecoin debacle and the bankruptcy of the Three Arrows 2022 Capital hedge fund, not to mention Binance’s own legal entanglements last year.
“Binance is the largest exchange and has survived the failures of FTX, 3AC, Terraform Labs and others,” said Austin Campbell, an adjunct professor at Columbia Business School and an advisor to blockchain companies. “The U.S. government’s actions were seen as a huge overhang, and because they were able to survive, it gave people confidence in them.”
How much has changed within Binance since the plea deal to expel Changpeng Zhao is a topic of much conversation in the crypto world.
The most obvious change is that Changpeng Zhao has given up his role as the company's public face. While he was never the type to mingle with celebrities or invite journalists into his home, as FTX's SBF did at his luxurious Bahamas penthouse, Zhao has become so low-key since his guilty plea that he's almost invisible. Gone are the days when he would push his ideas in interviews on financial news TV, podcasts, and conference panels, or confuse foes and fans on social media.
Filling in most of the blanks is He Yi, a mother of three and one of the co-founders of Binance.
Binance co-founder He Yi in Dubai last May. Photographer: Natalie Naccache/Bloomberg
“People are concerned that once CZ is no longer at the helm, there will be chaos,” said Annabelle Huang, managing partner at Amber Group, a cryptocurrency investment firm that trades on Binance.
While Richard Teng, formerly the chief regulator of Abu Dhabi Global Market, is the CEO and public face of Binance after Zhao, Zhao’s partners remain a significant force at the company.
He Yi said on social media that Binance's efforts to address the notorious "Wild West" crypto culture are still ongoing. She condemned so-called "rat trading," which is buying and selling with the intention of manipulating the market or for corrupt motives, such as notifying the exchange in advance that a new token listing could change its price. She threatened to blacklist any employees who participated in shady trading: "If we confirm that there is corruption among Binance team members, we will keep your identity confidential and reward you with a security bug bounty of $10,000 to $5 million."
Binance CEO Richard Teng at the Binance Digital Asset Forum Gulf in Bangkok on March 19. Photo by Sirachai Arunrugstichai/Bloomberg
In December, during a nearly two-hour "Ask Me Anything" session at X, He Yi and Teng split time. She described the division of labor between the two at the company: She focuses on user needs, while Teng interacts with global regulators as a public face. "The best place for me is to serve customers," and "Teng is more suitable for the role of CEO."
So what about Changpeng Zhao himself?
"CZ just stepped down, he's not going to hell," He Yi said with a smile during the discussion of X. Mentally, he's "still with us, don't worry," she said as she spoke. Here's a look at some of the things Zhao Changpeng did while awaiting sentencing: Go skiing.
While awaiting sentencing, Zhao’s home base has been in Los Angeles, with his sister, but he has been allowed to roam the U.S., where his two college-age children live, according to a court filing. The court banned him from leaving the country, even as he requested to visit an unidentified relative who was undergoing surgery in Abu Dhabi, where his partner He Yi and their three children also live.
Zhao Changpeng also has some friendly faces on Binance’s board, including some trusted lieutenants who worked for the company for years during its violations of U.S. law.
Heina Chen, the company’s co-founder and board member, was one of more than 160 people who wrote laudatory letters of recommendation to the court on Zhao’s behalf, trying to persuade the court to impose a lighter sentence on him. “CZ is the spiritual leader of Binance. He is also, without a doubt, my careful leader and guide,” she said. Board member Rock He, who has been with Binance since its founding in 2017, gushed that Zhao is like a brother to him: “This connection is what I am most proud of in my life and is a gift from heaven.” Wang Xin, a former White & Case attorney listed by Binance as an independent board member, told the court that Zhao helped care for her after she lost her mother, part of what she called “a tradition of quiet friendship that has lasted for decades.” Representatives for Binance did not respond to requests for comment on whether Zhao continues to discuss the company with current employees and board members.
It is time for Zhao Changpeng’s friends to take care of the company he created, a large company with thousands of employees scattered around the world but still without a physical headquarters. US regulators (likely large law firms or consultants) will be assigned to closely monitor Binance’s compliance with the US plea agreement for five years to ensure that it takes appropriate measures to comply with anti-money laundering and sanctions laws. Ultimately, the monitor’s report will answer the question of how much Binance has been able to change its ways.
The legal entanglements don’t end there, however. Last June, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance and its sister company Binance.US, accusing them of operating an unregistered exchange, broker-dealer, and clearing house, among other charges. Many believe the case will drag on for years as Binance fights the charges. Meanwhile, in Nigeria, a Binance executive has been in jail since late February for tax evasion and fraud; he has pleaded not guilty.
Many traders who use Binance haven’t seen much change at the exchange — and for many, that’s a good thing. They say they’re still talking to the same mid-level to junior staff and their trading experience hasn’t changed.
“It makes no difference to us," said investor Alistair Milne. "If anything, there is more certainty now because of the settlement, so that’s good news.”
Some are more cautious, especially in the post-FTX environment.
“I’m not going to lose sleep over the idea that Binance is going to disappear, but I need to make sure I don’t take all the risk,” said Tim Grant, chief executive of Deus X Capital, which manages more than $1 billion.
When it comes to Zhao's own risks, it will be up to federal judge Richard Jones to decide whether and for how long he goes to jail.
Changpeng Zhao leaves federal court in Seattle on November 21. Photo: Chloe Collyer/Bloomberg
Sam Mangel, a prison consultant who served his own sentence, said that if the billionaire does serve time, it will likely be in a lower-security prison, where he might even see some friendly faces among his fellow inmates.
“He won’t be blackmailed, he won’t be threatened,” Mangel predicted. “People who are very successful in low-security prisons tend to be respected.”
As for his next steps after being sentenced, Zhao told the court in a February letter that he has been discussing ambitious plans to use blockchain technology with biotech startups “with the goal of curing diseases once and for all and providing medical care to billions of people around the world.” Another insight into Zhao’s recent thinking came from a concept paper for something called Giggle Academy, his plan for a global online elementary school project.
“I could try to help fight corruption, world hunger, climate change, etc,” the concept paper reads. “But I have no expertise in that area.”
