Changpeng Zhao, the billionaire founder of crypto-trading platform Binance, has begun a four-month stay in prison. According to the Bureau of Prisons website, the ex-CEO has reported to a low-security federal prison in Lompoc, California. The prison sentence was handed down in April after Zhao pled guilty to charges that he enabled money laundering through his control of the crypto exchange.
When asked to confirm the information, Zhao’s legal defense team pointed CNBC investigators back to the Bureau of Prisons website.
The four-month sentence is an outlier when compared to similar crimes. Sentencing guidelines for the crime prescribed a prison sentence of 12 to 18 months. While Zhao’s defense team had asked for five months of probation for the crime, the four-month prison sentence he received fell well short of the requests of federal prosecutors, who sought a sentence of three years in prison for his crimes.
Zhao’s favorable sentencing may have been due to a deal struck between himself, his team, and U.S. government officials, which resolved the multiyear investigation of Binance. The deal required Zhao to step down as CEO, seemingly laying down the reins of what has become the world’s largest cryptocurrency exchange platform. In addition to the prison sentence and $4.3 billion in fines and forfeiture paid by Binance, Zhao himself was also required to pay a fine of $50 million.
“I believe the first step of taking responsibility is to fully recognize the mistakes,” Zhao said during a court appearance. “Here, I failed to implement an adequate money-laundering program.” He went on to say, “I realize now the seriousness of that mistake.”
The criminal charges leveled by federal prosecutors include knowing and willful failure to take steps to prevent money laundering on the platform. The Bank Secrecy Act requires platforms like Binance to actively implement effective programs to stop money laundering from taking place. Zhao was also charged with permitting the platform to process transactions involving unlawfully earned funds, particularly involving individuals and areas in defiance of sanctions.
Zhao may have learned from the example of former FTX CEO Sam Bankman-Fried, who faced sentencing without striking any deal with prosecutors or the government. Other accomplices of Bankman-Fried did strike deals, however, giving prosecutors sufficient evidence of the securities fraud conspiracy involving FTX and the Alameda Research hedge fund.
Convicted on seven criminal counts in March, the Bankman-Fried defense team attempted to argue for a sentence of 5 to 6.5 years, while federal prosecutors sought 40 to 60. The final sentence Bankman-Fried received was 25 years in prison as well as $11 billion in forfeiture.
The difference between the cases could come down to elements of risk and the presence of remorse. Judge Lewis Kaplan, on the subject of the Bankman-Fried case, said, “There is a risk this man will be in the position to do something very bad in the future,” adding, “And it’s not a trivial risk at all,” as well as stating that Bankman-Fried never spoke, “a word of remorse for the commission of terrible crimes.”
Zhao, on the other hand, stated clearly and succinctly, “I’m sorry,” before U.S. District Judge Richard Jones handed down the four-month sentence.
