According to market data, investors withdrew approximately $956 million from Binance, a crypto exchange, within the past 24 hours. This followed news that Changpeng Zhao, Binance’s chief, had resigned and faced the possibility of prison time after pleading guilty on Tuesday to resolving a U.S. illicit finance investigation that had gone on for several years.
The settlement includes Binance paying $4.3 billion to U.S. authorities, raising concerns about the future of the world’s largest crypto exchange and posing another setback for an industry that has been plagued by scandals. Richard Teng, a senior Binance executive who joined in 2021, has taken over from Zhao, who is still Binance’s founder and major shareholder. It is still unclear how much jail time, if any, Zhao will ultimately serve, and how much influence he can continue to exert on Binance under the terms of the settlement.
Furthermore, the deal is unlikely to resolve Binance’s U.S. legal issues, as the Securities and Exchange Commission’s allegations that Binance violated U.S. securities laws remain unresolved. According to Robert Le, a crypto analyst at data firm PitchBook, Binance is not entirely out of the woods and the ongoing civil lawsuit with the SEC is still a concern for the exchange, which is likely to result in further fines.
Data from crypto analytics platform Nansen, which does not include bitcoin flows, indicated that some investors had been unsettled by the news and had withdrawn $956 million from the exchange. However, these outflows were small compared to the more than $65 billion of assets that remain on Binance, according to Nansen.
Authorities claimed that, as Binance aimed for market dominance, it ignored key checks that Zhao believed would turn customers off. It failed to report over 100,000 suspicious transactions, including with organizations the U.S. described as terrorist groups like Palestinian militant group Hamas, and never reported transactions with websites dedicated to selling child sexual abuse materials. Binance did not respond to a request for comment at the time of this writing.
However, the company stated on Tuesday that it had worked hard to make Binance “safer and even more secure.” Lawyers for Zhao did not respond to requests for comment on Wednesday. On Tuesday, Zhao admitted that “I made mistakes, and I must take responsibility.” While Zhao and Binance have been under investigation since at least 2018, Zhao’s departure is a significant development for one of the crypto industry’s most powerful figures. Zhao, who resides in the United Arab Emirates, entered his guilty plea in a Seattle court on Tuesday.
According to federal guidelines, he faces a maximum prison sentence of 18 months and has agreed not to appeal any sentence up to that length. A Justice Department spokesperson said on Wednesday that prosecutors will take a position on how much jail time to seek closer to Zhao’s Feb. 23 sentencing hearing in Seattle. Zhao posted a $175 million bail bond, with another $15 million held in a trust account, according to a court filing. He has agreed to return to the United States 14 days before sentencing. His whereabouts on Wednesday were not immediately known. Zhao’s lawyers stated at Tuesday’s hearing that he would remain in the Seattle area through Monday evening and would be able to return to the UAE if the district judge did not object to his agreement with the government, according to another DOJ spokesperson.
Federal prosecutors urged a federal judge on Wednesday to prevent Zhao from leaving the continental United States before his February sentencing, citing his bail conditions and stating that he posed a serious flight risk. Some legal experts believe that Zhao will not spend more than a year in prison, citing Arthur Hayes, the former chief of crypto exchange BitMEX, who also pleaded guilty to anti-money laundering violations. In 2022, Hayes was sentenced to six months of house arrest, even though the government had requested prison time.
Other senior BitMEX executives charged did not serve time. However, FTX founder Sam Bankman-Fried could face decades in prison after being convicted this month of defrauding his now-bankrupt crypto exchange’s customers. Legal experts stated that based on the alleged facts, prosecutors could have charged Zhao with more serious crimes carrying heavier sentences, but they had to balance that against the likelihood that he would have remained abroad to avoid being apprehended.
“To get the CEO to plead guilty should not be scoffed at,” remarked Daniel Silva, a partner at law firm Buchalter and former federal prosecutor. The settlement also prohibits Zhao from having any “present or future involvement in operating or managing” Binance, which he founded in 2017 and has maintained a tight grip on since.
He remains a major shareholder and stated on Tuesday that he will be “available to the team to consult as needed, consistent” with the deal. Some experts believe that this could give him a hook on which to exert control through the typical corporate governance channels.