Binance Founder Zhao’s Huge Wealth Unaffected by Prison Sentence

Billionaire Binance co-founder and former CEO Qiao Changpeng remains behind bars after being sentenced in a Seattle court, but his vast fortune remains intact and could continue to grow. expected to be high.

Mr. Zhao, commonly referred to as “CZ” in the cryptocurrency world, was sentenced to four months in prison on Tuesday after pleading guilty to enabling money laundering on his cryptocurrency exchange.

The sentence given to Zhao in Seattle federal court was significantly less than the three years in prison that federal prosecutors had sought for him. The defense had asked for a five-month suspended sentence. Sentencing guidelines called for 12 to 18 months in prison.

In a statement to CNBC, a Binance spokesperson said the cryptocurrency exchange has made “significant compliance enhancements,” including anti-money laundering detection and “hiring key compliance personnel.”

Zhao's lawyer did not immediately respond to CNBC's request for comment.

In November, Zhao reached an agreement with the US government to resolve a multi-year investigation into Binance. As part of Binance's $4.3 billion settlement with the U.S. Department of Justice, Zhao resigned as the company's CEO, and Binance agreed to establish an independent board of directors, as well as a compliance and audit committee. .

Of the seven directors recently appointed to the board since its inception, three have been designated as “independent” directors, and five of them, including all independent members of the board, have asked the judge for leniency in Mr. Zhao's criminal case. A letter was submitted. In sentencing.

Gabriel Abed, the board's chairman and one of its independent members, told U.S. District Judge Richard Jones that Zhao was “characterized by stoic calmness and genuine humility” and that he was “recognized for his significant accomplishments.” Despite this, he maintains a lifestyle characterized by frugality, including his clothing. I wear clothes I bought on Amazon, drive a Toyota, and wear an Apple Watch.

Despite Zhao now facing a prison sentence, industry experts and lawyers who spoke to CNBC say his vast personal wealth will not be affected and is likely to increase. Says.

Tre LaBelle, a Los Angeles corporate lawyer, told CNBC that the government is only entitled to any damages or fines imposed, not to Zhao's assets or wealth as a whole. Former federal prosecutor Neema Rahmani agreed, adding that Zhao's personal assets would not be affected by the ruling.

“Because Mr. Zhao and the government reached an agreement, the government did not obtain a judgment or restitution order against Mr. Zhao and did not disclose Mr. Zhao's assets,” Rahmani said. “He will gain great wealth when he is released from prison.''

Chao has built crypto exchange Binance, which he co-founded in 2017, from a relative unknown to one of the most formidable players in the fast-growing digital currency space.

Despite the fact that Mr. Zhao is in prison, his control over Binance shares means that he remains one of the richest people in crypto today.

Notably, Mr. Zhao has only pleaded guilty to one count of violating the U.S. Bank Secrecy Act (BSA), making him a first-time offender, and therefore having to step down as CEO and lose his interests with federal authorities. We have reached a settlement where we will not let go. Either you are no longer with the company or your assets are frozen.

“Typically, personal assets that are not directly related to criminal activity may not be affected,” said Braden Perry, a former senior trial attorney at the Commodity Futures Trading Commission. “His assets may also be managed on his behalf while he is incarcerated.”

This is a different situation than Sam Bankman Fried, the former CEO and founder of the controversial cryptocurrency exchange FTX. Bankman Freed, commonly referred to as “SBF,” saw his assets dwindle to zero after his crypto empire fell into bankruptcy in 2022.

“As for CZ's personal assets…he will still be able to hold onto his Binance stock and also maintain his crypto holdings, which will contribute an unknown but significant amount to his overall wealth and net worth.” Joshua De said. Voss, CCData's director of research, told CNBC via email.

“Since there is no embezzlement and no bankruptcy proceedings, it is highly unlikely that Mr. CZ's assets will be reduced to zero, as was the case with SBF,” DeVos said.

Moreover, Chao received a much easier sentence than his former crypto rival Bankman Freed. Bankman Freed was sentenced to 25 years in prison for crimes related to operating a virtual currency exchange.

Unlike the charges brought against Zhao and Binance, Bankman Freed's bankrupt exchange faced allegations of fraud and misuse of customer funds.

Experts say Zhao's net worth is likely to continue increasing as rising crypto prices, which tend to support trading activity on Binance, boost his personal wealth.

“CZ will be one of the richest people in prison,” said Iesha Yadav, law professor and associate dean at Vanderbilt University.

This is even after a series of legal troubles, including a Justice Department suit and several other high-profile lawsuits, including an ongoing lawsuit from the Securities and Exchange Commission.

The SEC accused Binance of offering and selling multiple unregistered crypto-asset securities. It is not yet clear when this lawsuit will be resolved.

According to Forbes Magazine's World's Richest People, which uses stock prices and exchange rates to rank the richest people, Zhao's personal net worth is estimated at $33 billion as of March 8, 2024, up from $10.5 billion during the same period last year. increased.

The Bloomberg Billionaires Index, another measure of the world's wealth, puts Mr. Zhao's net worth even higher at $42.9 billion.

CNBC could not independently verify Zhao's total net worth.

However, Mr. Zhao is widely reported to hold an estimated 90% stake in Binance, and his wealth primarily derives from his equity ownership in the company.

Binance is by far the world's largest crypto exchange by trading volume, processing $18.1 trillion worth of trading volume in 2023, according to data from crypto market data firm CCData.

About 80% of this amount ($14.4 trillion) comes from derivative products such as futures contracts, while the remaining $3.7 trillion comes from spot trading. Derivatives trading is an important part of Binance's business.

And even though Binance's market share has declined to 41.6% since Chao stepped down as CEO in November 2023, the company remains the dominant player overall and is the leading player in South Korean trading. Upbit, which is headquartered in Dubai, is several steps ahead of the US giant Coinbase.

Chao has previously said he has personal investments in Bitcoin and Binance's own BNB token, but did not disclose the value of his holdings. Binance Coin (BNB) is up 83% since the beginning of the year to $576.

Lucas Keeley, chief investment officer of digital wealth platform Yield Up, said that Zhao's “significant stake in the world's largest cryptocurrency exchange by volume has contributed to the overall cryptocurrency market.'' “They can potentially benefit from growth.”

According to Keeley, the recent approval of a spot Bitcoin exchange-traded fund in the U.S. has reignited interest in the cryptocurrency market and helped spark a new wave of institutional investors. It is certain that this will be a boon for Binance.

“These developments could contribute to Binance's growth and, by extension, CZ's wealth growth,” he told CNBC.

Mr. Zhao has suffered a partial hit to his entire fortune. He was forced 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 U.S. Bank Secrecy Act and sanctions against Iran. Yadav also pointed out that Chao may have contributed something to the billions of dollars that Binance owes the government.

Yadav told CNBC that while CZ's vast wealth is not directly threatened by today's conviction and sentence, there could still be indirect effects.

“The long-term negative impact on Binance will reduce the value of CZ’s investment in the crypto exchange,” Yadav said. “However, on the contrary, if Binance begins its path to recovery following today’s ruling, plea deal, and monitoring agreement, and as a result regains market share over time, CZ may even benefit.” be.”