The Rise And Fall Of Changpeng Zhao: Insights From The Binance Saga

Author Dalboyy 16 Nov 2024

Even if you’ve never bought a single crypto asset, you’ve almost certainly heard of Coinbase. Considering their brand recognition, you might assume Coinbase is the largest crypto exchange in the world. That’s not true. According to coinmarketcap.com, $3.3 billion worth of crypto assets were traded on Coinbase in the last 24 hours. That makes Coinbase just the 10th largest exchange in the world when looking at average daily trading volume.

The world’s largest crypto exchange is an entity called Bitcoiva, which I had literally never heard of until 10 minutes ago. Bitcoiva facilitated a mind-numbing $37 billion worth of crypto assets in the last 24 hours. I know nothing about Bitcoiva, and this article is not about Bitcoiva. This article is about the founder of the world’s second-largest crypto exchange: Binance. In the last 24 hours, Binance facilitated $23 billion worth of crypto trades.

The Founder of Binance: Changpeng Zhao

Binance was founded by a guy named Changpeng Zhao, more commonly known as “CZ.” CZ personally owns 90% of Binance. At the absolute height of crypto mania in early 2022, CZ was one of the ten richest people in the world with a net worth that came extremely close to $100 billion. Today, his $42 billion net worth makes him the 32nd richest person in the world. He is the richest Canadian citizen in the world. Unfortunately, CZ is about to add a somewhat embarrassing “richest” record to his resume. He’s about to become the richest person ever to go to jail.

In November 2023, CZ agreed to plead guilty to a single money laundering charge. The specific charge was for failure to maintain an effective anti-money laundering program at Binance. This marked a significant turn in the narrative surrounding one of the most prominent figures in the cryptocurrency world.

The Charges Against CZ

CZ also agreed to step down as CEO of Binance, pay a $50 million fine personally, and admit that his company operated an unlicensed money-transmitting business in violation of various anti-money-laundering requirements. Binance subsequently agreed to pay $4.3 billion in penalties to settle separate charges that it helped facilitate financial transactions that supported sanctioned terrorist organizations such as Al Qaeda. The implications of these charges are far-reaching and have sent shockwaves through the crypto community.

Money Laundering Charge: CZ pleaded guilty to failing to maintain an effective anti-money laundering program.
CEO Resignation: CZ stepped down as CEO of Binance.
Financial Penalties: A personal fine of $50 million and $4.3 billion paid by Binance.

Sentencing and Its Impact

Federal prosecutors requested a judge to sentence CZ to three years in prison. On Tuesday afternoon, CZ was sentenced to four months. When he enters a federal facility to serve his sentence, his net worth will still be in the $40-45 billion range. That will make CZ the richest person to ever go to jail. This unprecedented case raises questions about the future of crypto regulation and the legal landscape surrounding it.

I spent about an hour researching billionaires who have been imprisoned. The most obvious and related example is fellow fallen crypto mogul Sam Bankman-Fried. During the crypto mania of early 2022, SBF’s net worth peaked at $25 billion. Unfortunately, by the time he entered prison, his net worth had dropped to ZERO, contrasting sharply with CZ’s situation.

Historical Context of Imprisoned Billionaires

From my research, prior to CZ, the richest person to ever go to jail was dissident Russian businessman Mikhail Khodorkovsky. With a net worth of $15 billion, Mikhail was the richest person in Russia and the 16th richest person in the world in 2003 when he was arrested on charges of fraud and tax evasion. He served over ten years in a Siberian prison, and his story illustrates the complexities surrounding wealth and legality.

Going back to Sam Bankman-Fried for a moment… Federal plea/sentencing guidelines require the prisoner to serve at least 85% of their sentence. For CZ, that means 102 days. In contrast, former FTX founder Sam Bankman-Fried will be required to serve 85% of his 25 YEAR sentence related to his crimes at FTX. That’s a little over 21 years guaranteed sentence. In other words, if CZ reports to prison today, he might get out as early as mid-August of this year. Sam’s earliest shot at getting out would be in April 2045.

The Ethical Dilemma: Comparing SBF and CZ

What did SBF do? In short, he took money from his FTX customers to fund his lavish lifestyle and risky (losing) bets at his failing hedge fund. SBF was charged and convicted of seven financial frauds, including wire fraud, securities fraud, commodities fraud, and money laundering. The comparisons between SBF and CZ are striking, as both highlight the challenges and pitfalls within the cryptocurrency industry.

I would perhaps argue that allowing Al Qaeda, among countless other terrorist and criminal organizations, to launder money on a massive scale is a significantly worse sin. But where SBF was reckless, CZ was strategic. CZ kept a comparatively low profile for years, which made him much less of a public target. He also proactively negotiated his guilty plea instead of opting to try to beat the government in one of the most high-profile trials of the last few years.

Lessons from the Binance Saga

Could Sam have gotten a four-month sentence had he played his cards differently? Probably not. But he almost certainly could have negotiated a significantly shorter sentence had he not decided to go head-to-head with the feds. This saga provides valuable insights for anyone involved in the crypto world or business in general.

Proactive Legal Strategy: Engaging with authorities can sometimes yield better outcomes than fighting them.
The Importance of Compliance: Companies must prioritize maintaining effective anti-money laundering programs.
Public Perception: Keeping a low profile can help avoid becoming a target.

Speculation aside, here’s a fact: Four months from now, CZ will have served his full sentence and will walk free with a $40+ billion net worth. This case will undoubtedly influence future regulatory approaches in the cryptocurrency space.

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