Changpeng Zhao, the billionaire founder of the giant cryptocurrency exchange Binance, was sentenced on Tuesday to four months in prison, a much lighter sentence than other cryptocurrency executives have faced since the industry imploded in 2022.
Last year, Zhao pleaded guilty to a money laundering violation and acknowledged that his company allowed terrorist groups and other criminals to access its platform. Defense attorneys asked for probation without prison time, while prosecutors requested a three-year sentence, calling it an “unprecedented” crime.
But Judge Richard A. Jones, who oversaw the case in the United States District Court in Seattle, said in court on Tuesday that Mr. Zhao had taken responsibility for his crimes and was unlikely to violate the law again. law.
“Your conduct does not justify a 36-month sentence,” Judge Jones said. He called Mr. Zhao “a dedicated family man and generous person” and praised his “amazing achievement” 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 placed his hand over his heart.
“I failed here,” Zhao said in brief statements to the court. “I deeply regret my failure and I am sorry.”
It was not immediately clear when Mr. Zhao would report to prison. His lawyers asked the judge to expedite the process and requested that he serve his sentence at SeaTac, a federal prison in the Seattle area.
The sentencing was the second high-profile sanction this year in the Justice Department's campaign to root out criminal behavior in the crypto industry. In March, Sam Bankman-Fried, founder of the collapsed FTX exchange and Zhao's former business rival, was sentenced to 25 years in prison for fraud.
But Zhao's sentence was an extraordinary contrast to Bankman-Fried's sentence and the consequences that likely await other cryptocurrency executives who have been charged with crimes. Do Kwon, another high-profile cryptocurrency founder, was charged with fraud last year and sent to prison in Montenegro, pending extradition to the United States or his home country of South Korea. Alex Mashinsky, CEO of failed crypto bank Celsius, is fighting charges that carry decades in prison.
Mr. Zhao's four-month sentence is “an egregious miscarriage of justice and sends exactly the wrong message to criminals around the world.” saying Dennis Kelleher, president of Better Markets, a nonprofit that supports strict financial regulation.
Representatives of Mr. Zhao's legal team and the Justice Department declined to comment. In a letter to Congress this week, Carlos Uriarte, deputy attorney general, said lawmakers should establish harsher penalties for violations of the Bank Secrecy Act, the law Zhao admitted violating.
Not long ago, Zhao was at the top of the multi-billion dollar crypto industry, with a huge fortune and devoted online following. Binance was the most powerful crypto company in the world, processing up to two-thirds of all transactions. But he also faced investigations from several US agencies into whether Zhao had broken the law to build his empire.
Facing intense legal scrutiny, Zhao, known by the initials CZ, was often dismissive. He described concerns about Binance as “FUD,” or fear, uncertainty and doubt, an abbreviation in the cryptocurrency world for false rumors intended to harm a company.
In November 2022, Zhao's power in the industry increased after he helped take down Bankman-Fried with a series of social media posts (Zhao has millions of followers on x) that caused a run on FTX accounts. . When FTX didn't have the money to pay its clients, Zhao briefly agreed to buy the exchange, before backing out of the deal. Soon Bankman-Fried was arrested on fraud charges, leaving Zhao as the dominant figure in the industry.
But behind the scenes, Zhao and Binance were negotiating with federal prosecutors, hoping to escape their own legal problems. Zhao was living 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 hired a team of white-collar defense attorneys at the well-known law firm Latham & Watkins.
Then he made a deal.
In November, Binance agreed to pay $4.3 billion to various US agencies, including the Department of Justice, to resolve allegations that it had allowed terrorist organizations such as Hamas, the Islamic State and Al Qaeda to use its platform. Prosecutors said that under Zhao's watch, Binance had refused to comply with US sanctions, allowing access to clients in countries such as Iran, Syria and Cuba. The company also did not report suspicious transactions involving narcotics and child sexual abuse materials, the government said.
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 Bankman-Fried and other cryptocurrency executives, Zhao pleaded guilty to a single criminal charge. He admitted that he had failed to establish an adequate anti-money laundering system at Binance, resigned as the company's CEO and agreed to a $50 million fine. But he kept his stake in Binance and, with it, a $33 billion fortune, according to crypto-and-bitcoin-billionaires-in-the-world-2024/?sh=28e708f3726b” title=”” rel=”noopener noreferrer” target=”_blank”>Forbesmaking him the richest cryptocurrency executive.
In court papers 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 term, arguing that he had broken the law “on an unprecedented scale.”
“This was not a mistake, this was not a regulatory error,” Kevin Mosley, a lawyer for the Justice Department's money laundering section, said in court Tuesday. “The violation of US law was not incidental to his plan to make as much money as possible. “Breaking the law was an integral part of that effort.”
Defense attorneys responded that Mr. Zhao had shown remorse and accepted responsibility for his crime, and that he should not face any time behind bars. They said he had not been charged with fraud or stealing anyone's money, the crimes Mr. Bankman-Fried committed. And they present Zhao as a committed philanthropist who intended to donate the vast majority of his wealth.
During the hearing, the sister, mother and son of Mr. Zhao, a freshman at Pepperdine University, sat behind him in the gallery. Speaking to Judge Jones, William Burck, Mr. Zhao's lawyer, argued that the three-year recommendation was significantly harsher than the sentences faced by other defendants accused of similar crimes.
He called the prosecution's sentence “extraordinarily punitive and completely unjust.”
In the end, Judge Jones agreed that the recommendation was overblown. As the judge explained his reasoning, Mr. Zhao's son silently clenched his fist.
Since his guilty plea, Mr. Zhao has remained in the United States, after Judge Jones denied his request to return to his home in Dubai before sentencing. He has spent the last few months traveling around the country, including New York, Los Angeles and Telluride, Colorado.
Mr. Zhao has already laid the groundwork for his next act. He has connected with other entrepreneurs and introduced an online education platform called Giggle Academy, which he said would involve artificial intelligence. And he has spoken to start-ups working in biotechnology, an area in which he is interested in investing.
Through his ownership of Binance, Zhao also remains poised to benefit from the growth of the cryptocurrency industry, which has seen a resurgence in recent months.
“He may still continue to benefit handsomely from the operations of that company,” Mosley said in court.
Glenn Zorzal contributed reporting from Washington.
