Binance cryptocurrency exchange founder and CEO Changpeng Zhao speaks at Binance’s fifth anniversary event in Paris, France, July 8, 2022.
Staff | Reuters
Changpeng Zhao, the billionaire co-founder and former CEO of Binance, is expected to see his vast fortune intact and likely continue to grow, despite facing prison after his conviction in a Seattle court.
Zhao, commonly referred to as “CZ” in crypto circles, was sentenced to four months in prison on Tuesday after pleading guilty to charges of enabling money laundering at his crypto exchange.
The sentence handed down to Zhao in federal court in Seattle was significantly less than the three years federal prosecutors had sought for him. The defense asked for five months probation. Sentencing guidelines call for 12 to 18 months in prison.
A spokesperson for Binance said in a statement to CNBC that the crypto exchange has made “significant compliance improvements,” including regarding anti-money laundering detection and the “hiring of key compliance personnel.”
A lawyer for Zhao did not immediately respond to CNBC’s request for comment.
In November, Zhao struck a deal with the US government to resolve a multi-year investigation into Binance. As part of Binance’s $4.3 billion settlement with the US Department of Justice, Zhao stepped down as the company’s CEO and the exchange agreed to form a board of directors with independent members, as well as compliance and audit committees.
Of the total seven directors recently appointed to by a formed board of directorsthree were designated as “independent” — and five of them, including all independent board members, sent letters to the judge in Zhao’s criminal case asking for leniency in sentencing.
Gabriel Abed, the board’s chairman and one of its independent members, told U.S. District Judge Richard Jones that Zhao “had a stoic calm and genuine humility” and that “despite his considerable accomplishments” he maintained a lifestyle marked by simplicity, including dressing in clothes bought from Amazon, driving a Toyota and wearing an Apple Watch.
Although Zhao now faces prison time, industry experts and lawyers who spoke to CNBC say his vast personal fortune will remain intact and is likely to grow.
Los Angeles corporate attorney Tre Lovell tells CNBC that the government is only entitled to restitution or fines, not Zhao’s assets or wealth in general. Former federal prosecutor Neama Rahmani agreed, adding that Zhao’s personal wealth would not be affected by his sentence.
“Because Zhao and the government reached an agreement, the government did not obtain a judgment or restitution order against Zhao and did not disclose his assets,” Rahmani said. “He will have considerable wealth when he is released from prison.”
Changpeng Zhao, former CEO of Binance, arrives in federal court in Seattle, Washington, April 30, 2024.
David Ryder | Bloomberg | Getty Images
CZ’s wealth is unaffected
Zhao has taken Binance, the cryptocurrency exchange he co-founded in 2017, from a relatively obscure company to one of the most formidable players in the burgeoning digital currency space.
Despite the fact that Zhao has been put behind bars, his controlling stake in Binance means that he will continue to be one of the richest people in crypto today.
Notably, because Zhao pleaded guilty to only one count of violating the US Bank Secrecy Act (BSA), he is considered a first-time offender and thus reached an agreement with federal authorities to step down as chief executive director and not divest his interest in the company or assets are frozen.
“Typically, personal assets that are not directly related to criminal activity may be unaffected,” said Braden Perry, a former senior attorney at the Commodity Futures Trading Commission. “His assets can also be managed on his behalf while he is in prison.”
It’s a different situation from Sam Bankman-Fried, the controversial former CEO and founder of crypto exchange FTX. Bankman-Fried, who is commonly referred to as “SBF,” saw his fortune reduced to zero after his crypto empire collapsed into bankruptcy in 2022.
“Regarding CZ’s personal wealth…he will still be able to keep his stake in Binance, as well as keep his crypto holdings, which also contribute an unknown but substantial amount to his overall wealth and net worth,” Joshua de Vos, head of research at CCData, told CNBC via email.
“Since there is no misappropriation or bankruptcy proceedings, it is highly unlikely that CZ will see its wealth reduced to zero, as was the case with SBF,” de Vos said.
What’s more, Zhao escaped conviction much more easily than former crypto rival Bankman-Fried. Bankman-Fried received 25 years in prison for crimes related to the operation of his crypto exchange.
Unlike Zhao and the charges brought against Binance, Bankman-Fried’s failed exchange faced allegations of fraud and misappropriation of customer funds.
The crypto rally offers a boost to Zhao
Experts say Zhao’s net worth is likely to continue to grow as high crypto prices, which tend to support Binance’s trading activity, add to his personal fortune.
“CZ will now be one of the richest people in prison,” said Yesha Yadav, a law professor and associate dean at Vanderbilt University.
That’s even after a string of legal troubles, including the Justice Department’s case against him and several other high-profile lawsuits — including one from the Securities and Exchange Commission that is ongoing.
The SEC accused Binance of conducting multiple unregistered offers and sales of crypto-asset securities. It is not yet clear when the case will end.
Zhao had an estimated personal net worth of $33 billion as of March 8, 2024, up from $10.5 billion at the same time last year, according to the Forbes World’s Billionaires list, which ranks the richest people using stock and exchange prices courses.
The Bloomberg Billionaires Index, a separate measure of the world’s richest, puts Zhao’s net worth at an even higher figure, $42.9 billion.
CNBC was unable to independently verify Zhao’s total net worth.
But Zhao reportedly has about a 90% stake in Binance, and his wealth largely stems from his ownership in the company.
Binance is the world’s largest cryptocurrency exchange by trading volume, handling $18.1 trillion worth of trading volume in 2023, according to data from crypto markets data firm CCData.
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.
And although its Binance market share has fallen to 41.6% since Zhao stepped down as CEO in November 2023, the company remains the dominant player overall – leagues ahead of South Korean exchange Upbit, Dubai-based Bybit and US giant Coinbase .
Zhao has said earlier he has personal investments in bitcoin and his own BNB token on Binance, but does not disclose the value of these holdings. Binance Coin, or BNB, is up 83% so far this year to $576.
Lucas Keeley, chief investment officer of digital wealth platform Yield App, said Zhao’s “significant stake in the world’s largest cryptocurrency exchange by volume positions him to potentially benefit from the overall growth of the crypto market.”
The recent approval of a spot bitcoin exchange-traded fund in the US has led to renewed interest in the crypto market and helped spark a wave of new institutional investment, according to Keeley — and that will certainly benefit Binance.
“Such developments could contribute to the growth of Binance and, in general, the fortunes of CZ,” he told CNBC.
Zhao was dealt a partial blow to his overall fortune — he was forced to pay a $50 million fine, in addition to the $4.3 billion in fines and forfeiture Binance had to pay for violating the US Bank Secrecy Act and sanctions against Iran. Yadav noted that it’s also possible Zhao has some input into the billions Binance owes the government.
Yadav tells CNBC that while CZ’s vast fortune is not directly at risk from his conviction and sentence today, there could still be some indirect effects.
“The negative long-term impact on Binance will reduce the value of CZ’s investment in the crypto exchange,” Yadav said. “Conversely, however, CZ may even benefit if Binance begins a path to recovery following today’s verdict, plea agreement and monitoring agreement and regains market share over time as a result.”
https://www.cnbc.com/2024/04/30/binance-founder-zhaos-huge-wealth-unaffected-by-prison-sentence.html
