The controversial former head of the global cryptocurrency exchange Binance, Zhao Changpeng, has now officially resigned as head of the firm’s stateside arm, Binance.US.
Mr. Zhao has been in the regulators’ crosshairs for years, with both the Department of Justice (DOJ) and the Securities Exchange Commission (SEC) pursuing him for securities law violations and money laundering.
His departure from the top position at Binance comes just one week after he entered a guilty plea in a Seattle federal court to money-laundering charges brought by the DOJ. The fallen mogul will have to pay a $4.3 billion fine, but thanks to a plea arrangement, Mr. Zhao is expected to spend perhaps a year and a half in jail rather than the decade or more that he could otherwise face.
On Nov. 27, a federal judge ruled that Mr. Zhao can’t leave the country at least until the federal court in Seattle comes to a decision on whether he should be able to travel to one of the nations where he holds citizenship—Canada and the United Arab Emirates—prior to his February 2024 sentencing.
The fall of 2023 has seen a wave of crackdowns on crypto exchanges and the people who run them, notably including the Nov. 2 guilty verdict in the criminal trial of FTX founder Sam Bankman-Fried, which the jury took just four hours to reach. On Nov. 20, the SEC announced charges against San Francisco-based crypto exchange Kraken for allegedly operating as an unlicensed exchange, broker-dealer, and clearing agency.
With Binance’s longstanding rival, FTX, struggling under new CEO John Ray III to extricate itself from more than $8 billion in debt to large and small creditors around the world, the dethronement of Mr. Zhao may represent, for regulators, one of the final nails in the coffin of the crypto industry, which they continue to view as a haven for fraud and money laundering. Moreover, the government may feel that it has at least partly compensated for the humiliating failure it met with in its unsuccessful lawsuit against Ripple for the sale of digital token XRP on a public exchange.
Binance’s rise and fall is of a piece with the cyclical nature of other crypto exchanges’ fortunes. They and their founders have risen to the heights of fame and popularity and amassed great wealth—Sam Bankman-Fried at one point was worth more than $15 billion—and then come crashing down amid fear, uncertainty and doubt, public backlash, and ruinous legal action, not just in one jurisdiction but also globally.
The very decentralized nature that places such exchanges less directly under the oversight of a single government or regulator also helps reputational and legal trouble pursue them across borders. The fate of Binance and Mr. Zhao is a case in point.
Global Woes
Just weeks after a U.S. federal court hit Mr. Zhao with a summons in June, trouble developed for the exchange and its operations in Germany. BaFin, Germany’s financial regulator, had well-founded reservations about granting Binance’s request for a license to operate there, leading Binance to withdraw its request.The exchange’s efforts to obtain a license in Austria met with the same fate. In June, the exchange decided that things weren’t working out as hoped in Cyprus and applied for the deregistration of its operations there.
And the failure to win a virtual asset service provider in Holland led to a similarly abrupt pullout of all services from that country as of July 17.
In the absence of a license, the exchange couldn’t legally advertise its services.
The regulator has also gone after such fintech and crypto enterprises as Crypto.com and Cake DeFi. Under its president, Mark Branson, the regulator has taken a hard line against decentralized finance and the crypto market in general.
In the fast-paced, perpetually troubled world of cryptocurrency, what will be the next domino to fall?
Binance didn’t respond to a request for comment.
