Newstechok.com

Binance CZ founder heads to sentencing hearing facing years in prison

Zhao Changpeng, founder and CEO of Binance, attends a conference at the Porte de Versailles Exhibition Center in Paris, France, June 16, 2022.

Benoit Tessier | Reuters

Changpeng Zhao, the founder and former CEO of crypto exchange Binance, heads to a Seattle courtroom on Tuesday to learn whether the crimes he admitted to committing will land him in prison for an extended sentence.

In November, Zhao pleaded guilty to enabling money laundering at Binance. As part of his settlement with the Justice Department, Zhao agreed to step down as CEO. For months, U.S. District Judge Richard Jones weighed the appropriate punishment for Zhao, also known as CZ.

Once a titan of the crypto sector, Zhao built Binance into the world’s largest centralized crypto exchange globally. The company had more than $65 billion in assets by the time he stepped down. Unlike rival exchange FTX, which went bankrupt when founder Sam Bankman-Fried was charged with criminal liability, Binance has continued to operate.

Assets on the Binance platform total more than $122 billionaccording to blockchain data firm Nansen, a roughly 88% jump that follows a sharp rise in crypto prices in recent months.

Prosecutors say Zhao violated US law on an “unprecedented scale,” according to their sentencing memorandum to the court, and that he showed “willful disregard” for Binance’s legal responsibilities by operating the exchange in a “Wild West” fashion.

Zhao is accused of willfully failing to implement an effective anti-money laundering (AML) program as required by the Bank Secrecy Act and of allowing Binance to process transactions involving the proceeds of illegal activity, including between Americans and persons in sanctioned jurisdictions.

Binance handled $18.1 trillion in trading volume in 2023, according to data from CCData, a crypto market data firm.

About 80%—or $14.4 trillion—of that came from derivatives such as futures contracts, while the remaining $3.7 trillion came from spot trading. Derivatives trading is a key part of Binance’s business.

Zhao agreed to pay a $50 million fine on top of the $4.3 billion in fines and forfeiture that Binance was ordered to pay for violating the US Bank Secrecy Act and sanctions against Iran. The action was a joint effort by the Justice Department, the Commodity Futures Trading Commission and the Treasury Department while the SEC, which brought its own suit against the exchange, was absent.

The government is asking for a sentence of three years, double the upper limit of the guidelines, to “reflect the gravity of his crimes,” the prosecutor’s memo said.

Zhao’s lawyers asked for five months of probation. They say Zhao has taken responsibility for evading AML requirements and has a history of philanthropy and community service. In addition, he has already spent more than five months in the US, away from family, since pleading guilty.

More than 160 of Zhao’s supporters, including family members, Binance customers and UAE royalty, have written notes to the court asking for mercy.

Probably jail time

Most experts who spoke to CNBC about the upcoming sentencing predicted Zhao would spend some time behind bars.

“This is a high-profile case and the judge will feel pressure not to be soft during the sentencing,” former federal prosecutor Neama Rahmani told CNBC. He faces a sentence of a year or two.

Braden Perry, a former CFTC senior attorney, said the federal sentencing guidelines provide a framework but allow judges some discretion.

“For a first-time nonviolent CZ, the sentencing guidelines call for an advisory range of 10 to 16 months,” said Perry, currently a partner at the law firm Kennyhertz Perry.

Working in Zhao’s favor, Perry said, was that the defendant never faced trial, saving court and prosecutorial resources, and that he took responsibility and settled with multiple agencies, all concessions that could have affected of the judge’s decision.

“I believe the judge will recognize the sheer scale of the potentially suspicious transactions and the previous weak anti-money laundering program, but will recognize the effort and remediation,” Perry said. “Taking all the factors into account, I predict an indicative sentence of imprisonment. It will still preclude the admission of guilt and all other factors used in the sentencing decision.”

Yesha Yadav, a law professor and associate dean at Vanderbilt University, is looking for a judge to impose a sentence “in the low single digits — maybe three years.” However, this may include minimum jail time and the remainder of probation.

Yadav suggested Zhao would take advantage of Binance’s contrast to FTX, which was “revealed to be a criminal enterprise.

“Although Binance was convicted on extremely serious charges, it still remains a functioning, albeit weakened, business that continues to attract customers and seeks to revive its fortunes by focusing on regulatory compliance under surveillance,” said Yadav.

Former federal prosecutor Paul Tuchman is also facing some prison time due to the failure to comply with AML requirements, as well as the volume of funds that passed through Binance without being subject to such controls.

SEC fears of a crackdown have hit crypto investor enthusiasm

“Even though he’s a first-time offender, those factors that I just mentioned will probably outweigh his lack of a criminal record,” Tuchman said. “The need for general deterrence in the crypto industry and in the financial sector as a whole is so great that I imagine the DOJ will take the position and the judge will probably agree that this sentence should send a message that the consequences of violating these rules cannot be seen simply as a cost of doing business.”

Los Angeles corporate law attorney Tre Lovell said a shorter sentence, in the range of five to seven months, along with extended probation, is likely.

Lovell added that unlike Bankman-Fried, who was convicted of fraud and sentenced to 25 years in prison, Zhao was not charged with fraud or other crimes deserving of a longer sentence.

“In addition, his letter to the judge does reflect remorse, discusses poor decision-making, and points out that the Binance platform has implemented strict anti-money laundering controls under his direction,” Lovell said.

David Weinsteina former federal and state prosecutor who now practices as a corporate compliance and white-collar attorney at Jones Walker, said prison sentences are an important deterrent.

“I think the sentence will be completed in just under a year,” he said.

WATCHING: The Bankman-Fried verdict

https://www.cnbc.com/2024/04/30/binance-founder-cz-heads-to-sentencing-hearing-facing-years-in-prison.html

Exit mobile version