Binance founder sentenced to 4 months in prison

Changpeng Zhao, the billionaire founder of giant cryptocurrency exchange Binance, was sentenced Tuesday to four months in prison, a much lighter sentence than other industry executives have faced since the industry imploded in 2022.

Zhao pleaded guilty last year to money laundering violations, acknowledging that his company allowed terrorist groups and other criminals to access its platform. Defense lawyers asked for probation without prison, while prosecutors asked for a three-year sentence, calling it an “unprecedented” crime.

But Judge Richard A. Jones, who oversaw the case in U.S. District Court in Seattle, said in court Tuesday that Mr. Zhao has taken responsibility for his crimes and is unlikely to break the law again.

“Your conduct does not justify a 36-month sentence,” Judge Jones said. He called Mr. Zhao “a dedicated family man and a generous person” and praised his “staggering achievements” in building Binance.

Wearing a dark suit and light blue tie, Mr. Zhao, 47, did not visibly react when the sentence was announced. But he nodded vigorously during Judge Jones' testimony and put his hand over his heart.

“I failed here,” Mr. Zhao said in a brief comment to the court. “I deeply regret my failure and am sorry.”

It was not immediately clear when Mr. Zhao would report to prison. His lawyers asked the judge to speed up the trial and asked him to serve his sentence at SeaTac, a federal prison in the Seattle area.

The ruling was the second high-profile fine this year in the Justice Department's campaign to root out criminal behavior in the cryptocurrency industry. In March, Sam Bankman-Fried, the founder of the collapsed FTX stock exchange and a former business rival of Mr. Zhao, was sentenced to 25 years in prison for fraud.

But Mr. Zhao's sentence stood in striking contrast to Mr. Bankman-Fried's sentence and the consequences that likely await other crypto executives who have been accused of crimes. Do Kwon, another high-profile cryptocurrency founder, was charged with fraud last year and sent to prison in Montenegro, awaiting extradition to the United States or his home country of South Korea. Alex Mashinsky , CEO of failed cryptocurrency bank Celsius, is fighting charges that carry decades in prison.

Mr. Zhao's four-month sentence is “a serious miscarriage of justice and sends exactly the wrong message to criminals around the world,” said Dennis Kelleher, president of Better Markets, a nonprofit that advocates for strict financial regulation .

A representative for Mr. Zhao's legal team declined to comment.

Not long ago, Mr. Zhao was at the top of the multibillion-dollar cryptocurrency industry, with a fortune larger than that of his rivals. Binance was the most powerful cryptocurrency company in the world, processing up to two-thirds of all transactions. But he also faced investigations by several US agencies into whether Mr Zhao had broken the law to build his empire.

Faced with intense legal scrutiny, Mr. Zhao, who goes by the initials CZ, has often been dismissive. He described concerns about Binance as “FUD,” or fear, uncertainty and doubt, a cryptocurrency shorthand for false rumors intended to harm a company.

In November 2022, Mr. Zhao's power in the industry increased after he helped bring down Mr. Bankman-Fried with a series of social media posts (Mr. Zhao has millions of followers on by FTX. When FTX didn't have the money to repay its customers, Mr. Zhao briefly agreed to buy the exchange, before backing out of the deal. Soon Mr. Bankman-Fried was arrested on fraud charges, leaving Mr. Zhao as the dominant figure in the industry.

But behind the scenes, Mr. Zhao and Binance were negotiating with federal prosecutors, hoping to escape their own legal troubles. Mr. Zhao lived in the United Arab Emirates, which does not have an extradition treaty with the United States, and prosecutors wanted a deal that would force him to face criminal charges. With a possible indictment on the horizon, Mr. Zhao has hired a team of white-collar defense lawyers at the well-known law firm Latham & Watkins.

Then he struck a deal.

In November, Binance agreed to pay $4.3 billion to several US agencies, including the Department of Justice, to resolve allegations that it allowed terrorist organizations such as Hamas, Islamic State and Al Qaeda to use its platform. Prosecutors said that, under Mr. Zhao's watch, Binance had refused to comply with American sanctions, allowing access to customers in countries such as Iran, Syria and Cuba. The company also failed to report suspicious transactions involving narcotics and child pornography, the government said.

Mr. Zhao told Binance employees that it was “better to ask for forgiveness than permission,” prosecutors said in a recent court filing. He also boasted that if Binance had complied with US law, it would not be “as big as we are today,” prosecutors wrote.

But unlike Mr. Bankman-Fried and other crypto industry executives, Mr. Zhao pleaded guilty to only one crime. He admitted that he failed to establish an adequate anti-money laundering system on Binance. He also resigned as the company's CEO and accepted a $50 million fine. But he retained his ownership stake in Binance and, with it, a $33 billion fortune, according to Forbes, making him the richest executive in the crypto industry.

In documents filed in court last week, prosecutors said Mr. Zhao's crime carried a sentence of 12 to 18 months in prison under federal guidelines. But they asked Judge Jones to impose a three-year sentence, arguing he had broken the law “on an unprecedented scale”.

“It wasn't a mistake, it wasn't a regulation, oops,” Kevin Mosley, a lawyer in the Justice Department's anti-money laundering section, said in court Tuesday. “Breaking US law was not secondary to his plan to make as much money as possible. Breaking the law was an integral part of this effort.”

Defense lawyers countered that Mr. Zhao had shown remorse and accepted responsibility for his crime, and that he should not spend time behind bars. They said he had not been charged with fraud or stealing anyone's money, the crimes committed by Mr. Bankman-Fried. And they considered Mr. Zhao a committed philanthropist who intended to give away the vast majority of his wealth.

During the hearing, Mr. Zhao's sister, mother and son, a freshman at Pepperdine University, sat behind him in the gallery. In submissions to Judge Jones, William Burck, a lawyer for Mr. Zhao, argued that the three-year recommendation was significantly harsher than the penalties faced by other defendants accused of similar crimes.

He called the prosecution's sentence “extraordinarily punitive and completely unjust.”

Ultimately, Judge Jones agreed that the recommendation was excessive. As the judge explained his reasoning, Mr. Zhao's son silently raised his fist.

Following his guilty plea, Mr Zhao remained in the United States, after Judge Jones rejected his request to return home to Dubai before sentencing. He has spent the last few months traveling across the country, including New York, Los Angeles and Telluride, Colorado.

Mr. Zhao has already laid the groundwork for his next act. He has networked with other entrepreneurs and unveiled an online education platform called Giggle Academy, which he says involves artificial intelligence. And he spoke with start-ups operating in the biotechnology sector, a sector in which he is interested in investing.

Through his ownership of Binance, Mr. Zhao also remains poised to benefit from the growth of the cryptocurrency sector, which has seen a recovery in recent months.

“He is still able to continue to profit handsomely from the operations of that company,” Mr Mosley said in court.

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