Market data revealed that investors withdrew $956 million from Binance over the previous 24 hours after its CEO, Changpeng Zhao, resigned and risked prison time after pleading guilty to a years-long U.S. illegal financing inquiry on Tuesday. Binance will pay $4.3 billion to U.S. authorities, raising concerns about the future of the biggest cryptocurrency exchange in the world and dealing a blow to an industry rife with scandals. The business said that 2021 Binance executive Richard Teng succeeded Zhao.
On Wednesday, it was unclear how much jail time Zhao would spend and how much influence he might continue to wield on Binance under the deal. Some experts also observed that the acquisition was unlikely to settle Binance’s U.S. legal issues, with Securities and Exchange Commission accusations claiming securities law violations still pending.
Binance is still around. The exchange worries about the SEC civil litigation, which might lead to further fines, “PitchBook crypto analyst Robert Le stated.
Nansen, which does not include bitcoin movements, said that some investors pulled $956 million from the exchange after the revelation. Nansen said that Binance has more than $65 billion in assets; therefore, the outflows were minor.
Authorities claimed Binance avoided critical checks Zhao felt would deter clients as it sought market dominance. It neglected to disclose over 100,000 questionable transactions, including with terrorist groups like Hamas and child sexual exploitation websites.
Binance declined to comment but said Tuesday it has worked hard to make Binance “safer and even more secure.” On Wednesday, Zhao’s lawyers did not comment. On Tuesday, he admitted, “I made mistakes, and I must take responsibility.”
Zhao’s resignation is a significant step for one of the crypto industry’s most influential individuals. Authorities have been investigating Zhao and Binance since 2018. On Tuesday, UAE-based Zhao pleaded guilty in Seattle.
Federal rules allow him to serve 18 months in jail, and he has decided not to appeal. A Justice Department official said Wednesday that prosecutors will decide how much jail time to seek before Zhao’s Feb. 23 sentencing hearing in Seattle.
“But we reserve the right to seek a sentence above the guidelines.” A court record said Zhao posted $175 million in bail and maintained $15 million in a trust account. He’s consented to return to the U.S. 14 days before his sentence.
His Wednesday location was unknown to Reuters. On Tuesday, Zhao’s attorneys stated he would stay in Seattle until Monday night and return to the UAE if the district court did not object to his arrangement with the U.S., another DOJ spokeswoman said.
In a court filing later Wednesday, federal prosecutors sought a federal judge to bar Zhao from leaving the continental U.S. before his February sentence, citing his severe flight risk despite bail terms.
“There is no combination of conditions sufficient to protect against the risk of flight and ensure Zhao’s return” for punishment, prosecutors said.
According to Arthur Hayes, the former BitMEX head who pleaded guilty to anti-money laundering offenses, Zhao may serve less than a year in prison. Even though the government wanted jail time, Hayes received six months of house arrest in 2022. Other key BitMEX executives cleared and served no time.
After being found guilty this month of scamming consumers of his now-bankrupt crypto exchange, FTX founder Sam Bankman-Fried could serve decades in jail.
Legal experts said prosecutors might have prosecuted Zhao for more severe offenses with harsher punishments based on the claimed facts. Still, they had to evaluate that against the likelihood that he would have stayed overseas to evade arrest.
“To get the CEO to plead guilty should not be scoffed at,” said Buchalter partner and former federal prosecutor Daniel Silva.
The settlement prohibits Zhao from “any present or future involvement in operating or managing” Binance, which he started in 2017 and has tightly controlled. He remains a significant shareholder and said Tuesday he will be “available to the team to consult as needed, consistent” with the transaction.
“This might offer him a hook on which to exercise control—through the conventional corporate governance procedures (e.g., shareholder voting”),” Vanderbilt University law expert Yesha Yadav told Reuters. “At the same time, I imagine that Binance will be looking to be very careful.”
