Cryptocurrency exchange Binance founder and CEO Changpeng Zhao speaks at an event for Binance’s fifth anniversary in Paris, France, July 8, 2022.
Staff | Reuters
Changpeng Zhao, the billionaire co-founder and former CEO of Binance, is expected to see his mammoth wealth remain intact and likely continue to rise even as he faces bars following his conviction in a Seattle court.
Zhao, who is commonly referred to as “CZ” in crypto circles, was sentenced to four months in prison on Tuesday after pleading guilty to charges that he enabled money laundering at his crypto exchange.
The sentence given to Zhao in federal court in Seattle was significantly less than the three years federal prosecutors had sought. 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 compliance improvements,” including anti-money laundering detection and “hiring key compliance personnel.”
A lawyer for Zhao did not immediately respond to CNBC’s request for comment.
In November, Zhao reached a settlement with the US government to resolve a years-long 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.
Out of the total seven directors recently appointed in the since the board was formedthree were labeled “independent” — and five of them, including all independent board members, submitted 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 US District Judge Richard Jones that Zhao “was distinguished by a stoic composure and genuine humility” and that “despite his significant achievements,” he maintained a life characterized by simplicity, including dress. 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 vast personal fortune will remain unaffected and, if anything, is likely to grow.
Los Angeles corporate law attorney Tre Lovell tells CNBC that the government is only entitled to any damages or fines imposed, not Zhao’s assets or wealth as a whole. Former federal prosecutor Neama Rahmani agrees, adding that Zhao’s personal assets will not be affected by his sentence.
“Because Zhao and the government reached an agreement, the government did not obtain a court order or restitution order against Zhao and did not discover his assets,” Rahmani said. “He will have a significant fortune when he gets out of prison.”
Changpeng Zhao, former CEO of Binance, arrives in federal court in Seattle, Washington, on April 30, 2024.
David Ryder | Bloomberg | Getty Images
CZ’s wealth is not affected
Zhao took Binance, the cryptocurrency exchange he co-founded in 2017, from a relatively obscure company to one of the most formidable players in the growing digital currency space.
Despite Zhao being put behind bars, his controlling stake in Binance means he will continue to be one of the richest people in crypto today.
Specifically, 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 CEO and not resign of his interests in the company or have frozen assets.
“Typically, personal assets that are not directly connected to the criminal activity may be unaffected,” said Braden Perry, former senior trial 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, who is commonly referred to as “SBF,” saw his wealth dwindle to zero after his crypto empire collapsed into bankruptcy in 2022.
“Relative to CZ’s personal wealth…he could still keep his stake in Binance, as well as keep his cryptocurrencies, which also contribute an unknown but substantial amount to his total wealth and net worth.” , Joshua de Vos, head of research at CCData, told CNBC via email.
“Since there is no embezzlement or bankruptcy proceeding, it is highly unlikely that CZ will see its fortunes reduced to zero, as happened with SBF,” de Vos said.
Moreover, Zhao has escaped conviction far more easily than 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 charges against Binance, Bankman-Fried’s bankrupt exchange faced allegations of fraud and misappropriation of customer funds.
Crypto Rally gives Zhao a boost
Experts say Zhao’s net worth is likely to continue to rise as high cryptocurrency prices, which tend to support trading activity on Binance, boost his personal wealth.
“CZ will now be one of the richest people in prison,” said Yesha Yadav, a law professor and vice chancellor at Vanderbilt University.
That’s even after a series of legal problems, including the Justice Department’s case against him, and several other high-profile lawsuits — including one from the Securities and Exchange Commission that’s still ongoing.
The SEC accused Binance of making several 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 Forbes World’s Billionaires list, which ranks the richest people using stock prices and exchange rates.
The Bloomberg Billionaires Index, a separate measurement of the world’s richest, puts Zhao’s net worth at an even higher figure of $42.9 billion.
CNBC was unable to independently verify Zhao’s total net worth.
However, Zhao is widely reported to have a 90% stake in Binance, and his fortune comes largely from his ownership of the company.
Binance is by far the largest cryptocurrency exchange in the world by trading volume, processing $18.1 trillion worth of trading volume in 2023, according to data from cryptocurrency market 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 core part of Binance’s business.
And although 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 , Dubai-based Bybit and American giant Coinbase.
Zhao has he said before has personal investments in bitcoin and the Binance token BNB, however does not disclose the value of these holdings. Binance Coin, or BNB, is up 83% so far this year 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.”
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 Kiely — and that’s sure to be a boon for Binance.
“Such developments could contribute to Binance’s growth and, by extension, CZ’s wealth,” he told CNBC.
Zhao was hit with a partial hit to his overall fortune – he was forced to pay a $50 million fine, on top of the $4.3 billion in fines and seizure Binance was ordered to pay for violating the US Bank Secrecy Act and Iran sanctions. Yadav noted that it is also possible that Zhao will make some contribution to the billions that Binance owes the government.
Yadav tells CNBC that while CZ’s vast wealth is not directly threatened by his conviction and sentencing today, there may still be some indirect consequences.
“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 sentencing, plea agreement and follow-up agreement and regains market share over time as a result.”