Binance founder Zhao's vast wealth stays unaffected by the prison sentence

Changpeng Zhao, the billionaire co-founder and former CEO of Binance, is anticipated to see his mammoth fortune remain intact and certain proceed to rise whilst he faces prison following his sentencing 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 facilitating money laundering on his crypto exchange.

The sentence imposed on Zhao in federal court in Seattle was significantly shorter than the three years federal prosecutors had hunted for him. The defense had asked for five months probation. Sentencing guidelines called for a jail sentence of 12 to 18 months.

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

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

In November, Zhao entered into an agreement with the US government to finish a multi-year investigation into Binance. As a part of Binance's $4.3 billion settlement with the U.S. Department of Justice, Zhao resigned as the corporate's CEO and the exchange agreed to form a board of directors with independent members in addition to compliance and audit committees.

Of the entire seven recently appointed directors board formed since thenThree were described as “independent” – and five of them, including all independent members of the panel, submitted letters to the judge in Zhao's criminal trial asking for leniency in sentencing.

Gabriel Abed, chairman of the panel and certainly one of its independent members, told U.S. District Judge Richard Jones that Zhao “was distinguished by stoic composure and genuine humility” and that “despite his significant achievements,” he maintained a life-style characterised by simplicity, including of clothing, was embossed in clothing purchased on Amazon, drives a Toyota and wears an Apple Watch.

Although Zhao now faces prison time, industry experts and lawyers who spoke to CNBC say his vast personal wealth will remain unaffected and, if anything, will likely increase.

Tre Lovell, a company lawyer in Los Angeles, tells CNBC that the federal government is just entitled to any refunds or fines imposed, and never to Zhao's assets or assets as an entire. Former federal prosecutor Neama Rahmani agrees, adding that Zhao's personal assets won’t be affected by his sentence.

“Because Zhao and the government reached an agreement, the government did not obtain a judgment or restitution order against Zhao, nor did it disclose his assets,” Rahmani said. “He will have significant assets when he gets out of prison.”

Zhao has taken Binance, the cryptocurrency exchange he co-founded in 2017, from a comparatively unknown company into probably the most formidable players within the booming digital currency space.

Despite the undeniable fact that Zhao is behind bars, his controlling stake in Binance means he’ll still be certainly one of the richest people in crypto today.

In particular, since Zhao only pleaded guilty to at least one count of violating the US Bank Secrecy Act (BSA), he is taken into account a first-time offender and subsequently agreed with federal authorities to resign as CEO and never to desert his interest in intervening in the corporate or having assets frozen .

“Typically, personal assets that are not directly related to the criminal activity are left untouched,” said Braden Perry, a former senior trial attorney for the Commodity Futures Trading Commission. “His assets could be managed in his name even while he is incarcerated.”

This is a unique situation than Sam Bankman-Fried, the controversial ex-CEO and founding father of the crypto exchange FTX. Bankman-Fried, commonly known as “SBF,” saw his wealth shrink to zero after his crypto empire went bankrupt in 2022.

“With respect to CZ’s personal assets…he would still be able to retain his stake in Binance as well as retain his crypto holdings, which also contribute an unknown but significant amount to his total assets and net worth,” Joshua de Vos said , research director at CCData, told CNBC via email.

“As there is no embezzlement or bankruptcy proceedings, it is highly unlikely that CZ’s assets will be reduced to zero, as was the case with SBF,” de Vos said.

In addition, Zhao got off with a significantly lighter sentence than former crypto rival Bankman-Fried. Bankman-Fried received a 25-year prison sentence for crimes related to the operation of his crypto exchange.

Unlike Zhao and the allegations made against Binance, the bankrupt Bankman-Fried exchange was accused of fraud and misuse of customer funds.

Experts say Zhao's net price is prone to proceed rising as rising crypto prices, which are inclined to support trading activity on Binance, boost his own wealth.

“CZ will now be one of the richest people in prison,” said Yesha Yadav, a law professor and associate dean at Vanderbilt University.

That's despite a litany of legal problems, including the Justice Department's lawsuit against the corporate and several other other high-profile lawsuits — including one from the Securities and Exchange Commission that remains to be pending.

The SEC has accused Binance of constructing multiple unregistered offers and sales of crypto asset securities. It will not be yet clear when this case shall be concluded.

Zhao had an estimated personal net price of $33 billion as of March 8, 2024, a rise from $10.5 billion in the identical period last yr. This is in accordance with Forbes' World's Billionaires list, which ranks the richest people based on stock prices and exchange rates.

Bloomberg's Billionaires Index, a separate measure of the world's richest, puts Zhao's net price at a fair higher amount, $42.9 billion.

CNBC was unable to independently confirm Zhao's total assets.

However, it’s widely reported that Zhao holds an estimated 90% stake in Binance, and most of his wealth comes from his equity stake in the corporate.

According to crypto market data firm CCData, Binance is by far the world's largest cryptocurrency exchange by trading volume, processing $18.1 trillion price of trading volume in 2023.

Around 80% – or $14.4 trillion – of that got here from derivative products resembling futures contracts, while the remaining $3.7 trillion got here from spot trading. Derivatives trading is a very important a part of Binance’s business.

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

Zhao has said before He has personal investments in Bitcoin and Binance's own BNB token, but he has not disclosed the worth of those holdings. Binance Coin, or BNB, is up 83% thus far this yr to $576.

Lucas Kiely, chief investment officer of digital asset platform Yield App, said that Zhao's “significant stake in the world's largest cryptocurrency exchange by volume potentially positions him to benefit from the overall growth of the crypto market.”

The recent approval of a spot Bitcoin exchange-traded fund within the US has led to renewed interest within the crypto market and helped spark a wave of recent institutional investment, in accordance with Kiely – and that is certain to be a boon to Binance.

“Such developments could contribute to Binance’s growth and therefore CZ’s prosperity,” he told CNBC.

Zhao suffered a partial lack of his total assets – he was forced to pay a wonderful of $50 million, along with the $4.3 billion in fines and forfeiture that Binance owed for violating the U.S. Bank Secrecy Act and sanctions against it Iran needed to pay. Yadav noted that it is usually possible that Zhao will contribute to the billions that Binance owes the federal government.

Yadav tells CNBC that while CZ's enormous wealth will not be directly in danger from his conviction and today's sentencing, there could still be some indirect effects.

“A negative long-term impact on Binance will reduce the value of CZ’s investment in the crypto exchange,” Yadav said. “Conversely, however, CZ could actually benefit if Binance follows a path to recovery following today’s conviction, plea deal and monitoring agreement, thereby regaining its market share over time.”