Qiao Changpeng, the billionaire founder of giant crypto exchange Binance, was sentenced to four months in prison on Tuesday, the first time any other crypto executive has been sentenced since the crypto industry collapse in 2022. This is a much lighter punishment than what he has received.
Mr. Zhao pleaded guilty last year to money laundering violations, admitting that his company had given terrorist groups and other criminals access to its platform. The defense asked for a suspended sentence without jail time, but the prosecution asked for a three-year sentence, calling it an “unprecedented” crime.
But Judge Richard A. Jones, who handled the case in Seattle's U.S. District Court, said in court Tuesday that Mr. Zhao has taken responsibility for his crimes and is unlikely to break the law again. .
Judge Jones said: “Your actions do not merit a 36-month sentence.” He called Chao a “dedicated family man and a dedicated person” and praised his “amazing accomplishments” in founding Binance.
Mr. Zhao, 47, wearing a dark suit and light blue tie, showed no noticeable reaction when the verdict was announced. But he nodded emphatically and put his hand over his heart during Judge Jones' statement.
“I failed here,” Zhao said in brief courtroom remarks. “I deeply regret my mistake and am sorry.”
It was not immediately clear when Mr. Zhao would report to prison. His lawyers asked a judge to expedite his processing and asked that he serve his sentence at Sea-Tac, a federal prison in the Seattle area.
The ruling was the second high-profile punishment this year in the Justice Department's campaign to stamp out criminal activity in the cryptocurrency industry. In March, Sam Bankman Fried, the founder of the failed FTX exchange and a former business rival of Mr. Zhao, was sentenced to 25 years in prison for fraud.
But Chao's sentence was an unusual contrast to Bankman Fried's punishment and the consequences that await other crypto executives accused of crimes. Another prominent cryptocurrency founder, Do Kwon, was charged with fraud last year and sent to a prison in Montenegro, awaiting extradition to the United States or his native South Korea. Alex Mashinsky, the chief executive of failed cryptocurrency bank Celsius, is fighting charges that carry decades in prison.
Dennis Kelleher, president of Better Markets, a nonprofit organization that supports stricter financial regulation, said Zhao's four-month sentence was “a gross miscarriage of justice and sends exactly the wrong message to criminals around the world.” said.
A representative for Mr. Zhao's legal team declined to comment.
Not long ago, Mr. Zhao was at the top of the multitrillion-dollar cryptocurrency industry, with a fortune greater than that of his rivals. Binance is the most powerful cryptocurrency company in the world and processed two-thirds of all his transactions. But at the same time, Mr. Zhao also faced investigations by multiple U.S. government agencies into whether he broke laws to build his empire.
Facing intense legal scrutiny, Chao (initials CZ) often took a negative stance. He described his concerns about Binance as “FUD” (fear, uncertainty, and doubt). In the world of cryptocurrencies, this is an abbreviation for misinformation aimed at harming businesses.
In November 2022, Chao's power in the industry increased after he helped bring down Bankman Freed in a series of social media posts — he has millions of followers on X. — which caused a run on FTX's account. When FTX ran out of funds to repay customers, Mr. Zhao briefly agreed to buy the exchange before withdrawing from trading. Mr. Bankman Freed was soon arrested on fraud charges, and Mr. Zhao became the dominant figure in the industry.
But behind the scenes, Chao and Binance were negotiating with federal prosecutors, hoping to escape their legal predicament. Mr. Zhao lives in the United Arab Emirates, which does not have an extradition treaty with the United States, and prosecutors had hoped for a deal that would force him to face criminal charges. Ahead of possible indictment, Mr. Zhao hired a white-collar defense team from the prestigious law firm Latham & Watkins.
Then he sealed the deal.
In November, Binance agreed to pay $4.3 billion to multiple U.S. government agencies, including the Department of Justice, for allowing terrorist organizations such as Hamas, Islamic State, and al-Qaeda to use its platform. Prosecutors said that under Zhao's watch, Binance refused to comply with U.S. sanctions and granted access to customers in countries including Iran, Syria and Cuba. The company also failed to report any suspicious transactions involving drugs or child sexual abuse items, the government said.
Prosecutors said in a recent court filing that Zhao told Binance employees that it was “better to ask for forgiveness than to ask for permission.” He also boasted that if Binance had followed U.S. laws, Binance “would not be as big as it is today,” prosecutors wrote.
However, unlike Bankman Fried and other crypto executives, Chao only pleaded guilty to one charge. He admitted that Binance failed to establish adequate anti-money laundering systems. He also resigned as the company's chief executive officer and agreed to pay a $50 million fine. However, he retained ownership of Binance and its $33 billion fortune, making him the richest executive in the crypto world, according to Forbes.
Prosecutors said in a court filing last week that Zhao's crimes carried a sentence of 12 to 18 months in prison under federal guidelines. But they asked that Judge Jones impose a three-year prison term, saying he had broken the law on an “unprecedented scale”.
“This was not a mistake. This was not a regulatory misstep,” Kevin Mosley, an attorney with the Justice Department's money laundering division, said in court Tuesday. “Breaking U.S. laws was not incidental to his plan to make as much money as possible. Breaking the law was essential to that effort.”
The defense argued that Mr. Zhao had shown remorse and accepted responsibility for his crimes and should not be sent to prison at any time. They said Mr. Bankman-Freed has not been charged with fraud or theft of other people's money. And they cast Mr. Zhao as a devoted philanthropist who intends to give away most of his wealth.
During the hearing, Zhao's sister, mother and son, all freshmen at Pepperdine University, sat behind him in the audience. Mr. Chao's lawyer, William Burke, argued in his remarks to Judge Jones that the three-year recommendation was significantly harsher than the sentences imposed on other defendants charged with similar crimes.
He called the prosecutor's sentence “extremely punitive and completely unfair.”
Ultimately, Judge Jones agreed that this recommendation went too far. While the judge explained his reasons, Zhao's son silently raised his fist.
Mr. Zhao has remained in the United States since pleading guilty after Judge Jones rejected Mr. Zhao's request to return to Dubai before sentencing. He has traveled around the country in recent months, including to New York, Los Angeles, and Telluride, Colorado.
Mr. Zhao is already laying the groundwork for his next move. He networked with other entrepreneurs and announced an online education platform called Giggle Academy, which he said would involve artificial intelligence. He then spoke to startups working in biotechnology, an area he was interested in investing in.
Through his ownership in Binance, Chao is also poised to benefit from the growth of the cryptocurrency industry, which has experienced a resurgence in recent months.
Mr Mosley told the court: “He remains in a position to continue to profit significantly from the operations of that company.”
