Binance founder Zhao’s enormous wealth has no bearing on his prison sentence

Changpeng Zhao, the billionaire co-founder and former CEO of Binance, is predicted to stay intact and certain proceed to grow although he faces prison time following his verdict in a Seattle court.

Zhao, commonly known as “CZ” in crypto circles, was sentenced to 4 months in prison on Tuesday after pleading guilty to charges of enabling money laundering on his cryptocurrency exchange.

Zhao’s sentence in federal court in Seattle was much shorter than the three years federal prosecutors searched for him. The defense asked for a five-month suspension. The sentencing guidelines called for a prison sentence of 12 to 18 months.

A Binance spokesperson said in an announcement to CNBC that the cryptocurrency exchange has made “significant improvements in compliance,” including with respect to money laundering detection and “the hiring of key compliance personnel.”

Zhao’s lawyer didn’t immediately reply to CNBC’s request for comment.

In November, Zhao reached an agreement with the U.S. government to resolve the long-running investigation into Binance. As a part of Binance’s $4.3 billion settlement with the U.S. Department of Justice, Zhao stepped down as the corporate’s CEO and the exchange agreed to determine a board of directors composed of independent members, in addition to compliance and audit committees.

Of the seven directors recently appointed because the establishment of the management boardthree were deemed “independent”, and five of them, including all independent board members, submitted letters to the judge in Zhao’s criminal case asking for leniency.

Gabriel Abed, the board’s chairman and one in every of its independent members, told U.S. District Judge Richard Jones that Zhao “was distinguished by his stoic calm and true humility” and that “despite his notable achievements” he maintained a life-style of simplicity, including dressing in clothes bought on Amazon, driving a Toyota and wearing an Apple Watch.

Even though Zhao now faces prison time, industry experts and lawyers who spoke to CNBC say his vast personal wealth will remain unchanged and, if anything in any respect, will likely increase.

Los Angeles corporate law attorney Tre Lovell tells CNBC that the federal government is barely entitled to restitution or financial penalties, not all of Zhao’s assets. Former federal prosecutor Neama Rahmani agrees, adding that the decision may have no impact on Zhao’s personal assets.

“Because Zhao and the government reached an agreement, the government did not obtain a judgment or order of restitution against Zhao or make any disclosure of his assets,” Rahmani said. “He will have a significant fortune when he gets out of prison.”

Zhao transformed Binance, the cryptocurrency exchange he co-founded in 2017, from a comparatively unknown company into one of the formidable players within the booming digital currency space.

Even though Zhao is in prison, his controlling stake in Binance means he’ll still be one in every of the richest people in cryptocurrency.

It is value noting that because Zhao only pleaded guilty to at least one count of violating the U.S. Bank Secrecy Act (BSA), he is taken into account a first-time offender and has subsequently reached a plea agreement with federal authorities to step down as a director general manager and never to surrender his interests in the corporate or freeze the assets.

“Typically, personal property not directly related to criminal activity can remain intact,” said Braden Perry, a former senior litigator on the Commodity Futures Trading Commission. “His estate could also be managed on his behalf while he is in prison.”

This is a unique situation than Sam Bankman-Fried, the controversial former CEO and founder of cryptocurrency exchange FTX. Bankman-Fried, commonly known as “SBF”, saw his fortune plummet to zero following the collapse of his crypto empire in 2022.

“In terms of CZ’s personal wealth, he would still be able to retain his interest in Binance as well as maintain his cryptocurrency holdings, which also contribute an unknown but significant amount to his overall wealth and net worth,” Joshua de Vos, research manager at CCData, told CNBC by email.

“Since there are no pending misappropriation or bankruptcy proceedings, it is very unlikely that his CZ assets will be reduced to zero, as was the case with SBF,” de Vos said.

What’s more, Zhao got off the hook much easier than former cryptocurrency rival Bankman-Fried. Bankman-Fried was sentenced to 25 years in prison for crimes related to running his cryptocurrency exchange.

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

Experts say Zhao’s net value will likely proceed to rise as rising cryptocurrency prices, which generally support Binance’s trading activities, 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.

This comes even after a litany of legal challenges, including a lawsuit filed against it by the Department of Justice and several other other high-profile lawsuits, including one by the Securities and Exchange Commission, that remain pending.

The SEC accused Binance of constructing multiple unregistered offers and sales of securities of crypto assets. It just isn’t yet known when the case will end.

According to Forbes’ list of the world’s billionaires, which ranks the richest people based on stock prices and exchange rates, Zhao had an estimated net value of $33 billion as of March 8, 2024, up from $10.5 billion at the identical time last yr .

The Bloomberg Billionaires Index, a separate measure of the world’s richest people, estimates Zhao’s fortune at an excellent higher total – $42.9 billion.

CNBC was unable to independently confirm Zhao’s overall net value.

However, it’s widely reported that Zhao holds roughly 90% of Binance, and his fortune largely comes from his stake in the corporate.

According to data from cryptocurrency market data firm CCData, Binance is by far the world’s largest cryptocurrency exchange when it comes to trading volume, having processed $18.1 trillion in trading volume in 2023.

About 80%, or $14.4 trillion, got here from derivative products comparable to futures contracts, with the remaining $3.7 trillion coming from spot market transactions. Derivatives trading is a key a part of Binance’s business.

And while Binance has seen its market share decline to 41.6% since Zhao stepped down as CEO in November 2023, the corporate stays the dominant player overall – ahead of South Korean exchange Upbit, Dubai-based Bybit and US giant Coinbase .

Zhao has he said earlier he has personal investments in bitcoin and his own BNB Binance token, but he didn’t disclose the worth of those shares. Binance Coin, or BNB, is up 83% this yr to $576.

Lucas Kiely, chief investment officer of the Yield App platform, said that Zhao’s “significant stake in the world’s largest cryptocurrency exchange by volume allows it to potentially benefit from the overall growth of the cryptocurrency market.”

The recent approval of a U.S. bitcoin exchange-traded fund has led to renewed interest within the cryptocurrency market and helped spark a wave of recent institutional investment, in accordance with Kiely – which is able to actually be a boon for Binance.

“Such events could contribute to Binance’s growth and, in turn, CZ’s wealth,” he told CNBC.

Zhao was partially hit on his overall wealth – he was forced to pay a $50 million nice, on top of the $4.3 billion in fines and forfeitures that Binance was ordered to pay for violating the U.S. Bank Secrecy Act and sanctions on Iran. Yadav noted that additionally it is possible that Zhao will make some contribution to the billions Binance owes the federal government.

Yadav tells CNBC that while CZ’s vast fortune just isn’t in immediate danger attributable to his conviction and today’s sentence, there could still be some indirect impacts.

“The negative long-term impact on Binance will reduce the value of CZ’s investment in the cryptocurrency exchange,” Yadav said. “However, on the other hand, CZ may even benefit if Binance begins a path to recovery from today’s verdict, settlement and monitoring agreement and, as a result, regains its market share over time.”