Binance founder Zhao’s immense wealth unaffected by prison sentence

Changpeng Zhao, the billionaire co-founder and former CEO of Binance, is expected to see his mammoth wealth remain intact and likely continue to climb even as he faces prison time after his conviction in a Seattle court.

Zhao, commonly known as “CZ” in crypto circles, was sentenced to four months in prison on Tuesday, after pleading guilty to charges of enabling money laundering in his crypto exchange.

Zhao’s sentence in Seattle federal court was significantly less than the three years federal prosecutors sought against him. The defense had asked for five months of probation. Sentencing guidelines called for a prison term of 12 to 18 months.

A Binance spokesperson said in a statement to CNBC that the crypto exchange has made “significant improvements in compliance,” including around money laundering detection and “hiring key personnel regarding compliance.

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 deal with the U.S. Department of Justice, Zhao resigned as CEO of the company and the exchange agreed to form a board of directors comprised of members independent committees, as well as compliance and audit committees.

Of the seven directors recently appointed to the since-formed board, three have been designated as “independent” – and five of them, including all independent board members, have submitted letters to the judge in the case Zhao’s criminal court asking for leniency. in sentencing.

Gabriel Abed, chairman of the board and one of its independent members, told U.S. District Judge Richard Jones that Zhao was “distinguished by stoic composure and true humility” and that “despite his significant accomplishments “, he maintained a lifestyle marked by simplicity, including dressing. in clothes bought on 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 immense personal wealth will not be affected and is likely to grow.

Tre Lovell, a corporate lawyer in Los Angeles, told CNBC that the government is only entitled to any restitution or fines imposed and not to Zhao’s assets or wealth as a whole. Former federal prosecutor Neama Rahmani agrees, adding that Zhao’s personal fortune will not be affected by his conviction.

“Because Zhao and the government reached an agreement, the government did not obtain a judgment or restitution order against Zhao and did not proceed with discovery of his assets,” Rahmani said. “He will have significant wealth when he leaves prison.”

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 booming digital currency space.

Despite Zhao being put behind bars, his majority stake in Binance means he will continue to be one of the richest people in the crypto industry today.

Notably, because Zhao pleaded guilty to a single count of violating the Bank Secrecy Act (BSA), he is considered a first-time offender and thus reached an agreement with federal authorities to resign from his position as CEO and not give up his interests. in the company or have their assets frozen.

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

This is a different situation than Sam Bankman-Fried, the controversial former CEO and founder of crypto exchange FTX. Bankman-Fried, commonly known as “SBF,” saw his wealth reduced to zero after the collapse of his crypto empire in 2022.

“Regarding CZ’s personal wealth…he would still be able to maintain his stake in Binance, as well as maintain his crypto holdings which also contribute an unknown, but significant, amount to his overall wealth and his net worth,” Joshua de Vos, head of research at CCData, told CNBC via email.

“As there is no embezzlement or bankruptcy procedure, it is very unlikely that CZ will see its wealth reduced to zero as was the case for SBF,” de Vos said.

Additionally, Zhao got off much easier on convictions than his former crypto rival Bankman-Fried. Bankman-Fried was sentenced to 25 years in prison for crimes related to the operation of his crypto exchange.

Unlike Zhao and the accusations against Binance, the bankrupt Bankman-Fried exchange has faced allegations of fraud and misuse of customer funds.

Experts say Zhao’s net worth is likely to continue to rise as dynamic cryptocurrency prices, which tend to support trading activity on Binance, increase 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.

And that’s even after a litany of legal problems, including the Justice Department’s lawsuit against him, and several other high-profile lawsuits — including one from the Securities and Exchange Commission that is still pending.

The SEC has accused Binance of making several unregistered offers and sales of crypto asset securities. We do not yet know when this case will be concluded.

Zhao had an estimated personal net worth of $33 billion as of March 8, 2024, up from $10.5 billion in the same period last year, according to Forbes’ Global Billionaires List, which ranks the richest people in using stock prices and exchange rates.

Bloomberg’s Billionaires Index, a separate measure of the world’s richest, pegs Zhao’s net worth at an even higher amount, $42.9 billion.

CNBC has not been able to independently verify Zhao’s overall net worth.

But Zhao is widely reported to have an estimated 90% stake in Binance, and his fortune comes largely from his equity stake in the company.

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

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

And even though Binance has seen its market share drop 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, Bybit , headquartered in Dubai, and the American giant Coinbase.

Zhao has previously said he holds personal investments in bitcoin and Binance’s own BNB token, but he has not disclosed the value of those holdings. Binance Coin, or BNB, is up 83% year to date to $576.

Lucas Kiely, 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 cryptocurrency market.” cryptography”.

The recent approval of a Bitcoin spot exchange-traded fund in the United States has sparked renewed interest in the crypto market and helped spark a wave of new institutional investments, according to Kiely – and it’s sure to be a boon for Binance.

“Such developments could contribute to the growth of Binance and, by extension, the wealth of CZ,” he told CNBC.

Zhao was partially hit by his overall 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 US Bank Secrecy Act and sanctions against Iran. Yadav noted that it is also possible that Zhao contributes to the billions Binance owes the government.

Yadav told CNBC that while CZ’s vast wealth is not directly threatened due to his conviction and today’s sentencing, there may still be indirect effects.

“The long-term negative impact on Binance will diminish the value of CZ’s investment in the crypto exchange,” Yadav said. “Conversely, however, CZ could even benefit if Binance begins a path to recovery after today’s sentencing, plea agreement and monitoring agreement, and thus regains its market share at over time.”