The Breakdown - Former Binance CEO CZ Gets 4 Months In Jail (Because Of COURSE He Got 4)

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, April 30th, and today we are talking about CZ's prison sentence. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, friends, today is in many ways a second part of the denouement on the last cycle. I think it's pretty clear that the most cathartic move-on inflection sort of moment was the sentencing

Starting point is 00:00:49 of SBF. And we'll talk a little bit today about how the vibes differ with this particular case. But still, it is a remarkable representation of the shift that as a new generation of Bitcoin ETFs from companies like BlackRock and Fidelity, lead the charge on this new cycle, the giants of the last one are either in jail or headed there. Now to catch up on the details, CZ was being sentenced today for failing to maintain effective anti-money laundering procedures at the exchange. CZ played guilty to these charges in November, and in the plea agreement, CZ had agreed to accept an 18-month prison sentence without appeal. Prosecutors subsequently made the point that they were at liberty to ask for the maximum sentence of 10 years, which they did

Starting point is 00:01:29 as part of their argument for why CZ should not be allowed to leave the country before his sentencing. Both CZ's defense and the prosecutions have made a strong case to the court ahead of this sentencing hearing. In their final submission, the DOJ settled on asking for three years in prison. This is above the federal sentencing guidelines, but prosecutors argued a harsh sentence was warranted, stating, Zhao's willful violation of U.S. law was no accident or oversight. He made a business decision that violating U.S. law was the best way to attract users, built his company, and line his pockets. CZ's legal team responded by asking for nothing more than house arrest and probation,

Starting point is 00:02:01 arguing, Mr. Zhao has paid massive fines. He directed the company to plead guilty before this court and to resolve related civil charges with three federal agencies. These factors strongly favor lenience. CZ has already agreed to pay 50 million in fines personally, and Binance have committed to paying a total of 4.3 billion in fines, representing one of the largest corporate settlements in history. CZ's sentencing request was accompanied by 161 letters of support from friends, family, and business associates. The letters describe CZ as a devoted father to his five children, with positive. statements from his former wife and current partner. The list of people willing to go on record to support CZ included some extremely credible names. Letters were received from professors at Columbia

Starting point is 00:02:40 and McGill Universities, a managing director at Morgan Stanley, members of the royal family of the UAE, and a former U.S. ambassador to China. Most importantly, CZ's personal communication with the court expressed contrition and remorse. CZ wrote, I apologize for my poor decisions and accept full responsibility for my actions. In hindsight, I should have focused on implementing compliance changes at Binance from the get-go, and I did not. There is no excuse for my failure to establish the necessary compliance controls at Binance. Words cannot explain how deeply I regret my choices that result in me being before the court. Rest assured that it will never happen again. Please accept my assurance that this will be my only encounter with the criminal justice system, and that

Starting point is 00:03:17 going forward I will live my life in a manner that will make everyone proud. So what did people think would happen? Prediction markets were suggesting that CZ's sentence would come in low. Earlier this week, Polymarket odds handicapped the chance of a six-month sentence at 42 percent, with 60 percent odds of a sentence of less than a year. The markets only gave 3 percent odds that the DOJ would get what they were asking for and C. Z sentenced to three years in prison. Probation and house arrest would be in line with the sentence received by BitMex co-founder Arthur Hayes in 2022. Hayes pled guilty to the same charge as CZ and was sentenced to six months of home detention in two years of probation, along with a $10 million fine. CZ's team even pointed out that, quote,

Starting point is 00:03:54 no defendant in a remotely similar case has ever been sentenced to incarceration. Still many believe that the DOJ is attempting to send a message to the industry through CZ, drawing a line in the sand that money laundering in crypto will not be tolerated. Law partner Toma Kudman said, The government wants to make sure these low guidelines don't give anyone comfort to equally feel free to violate our anti-money laundering initiatives. And she noted that CZ's conduct was, in her words, pretty flagrant. CZ's legal team addressed this point, arguing that he should not be made into a martyr for broader misconduct in the industry. They wrote, this is a high-profile case to be sure, but Mr. Zhao is not a symbol. He's a devoted father,

Starting point is 00:04:28 a philanthropist, he has already shown remorse for his offense and more importantly has remediated. Ryan Sean Adams, the co-host of Bankless, wrote CZ versus SBF's crimes are entirely different to most people in crypto. SBF stole money from us. CZ disregarded the U.S. surveillance laws. How harshly U.S. courts decide to treat the latter will tell us a lot. This morning, CoinDesk's Nick D was in the courtroom in Seattle to cover the hearing. Nick described the scene of the courtroom. He said that it wasn't quite standing room only, but it was pretty packed. He also said that there was a different vibe than during SBF sentencing. The actual proceedings kicked off a little after 9.30 a.m. Pacific time.

Starting point is 00:05:02 One of the first things that Judge Richard Jones said was that he didn't agree with the DOJ's request for an enhancement to the sentencing guidelines to push the sentence from 18 months to three years. Notably, Jones said, quote, there's no evidence that the defendant was ever informed of a legal activity. The DOJ then responded by arguing that the judge should be able to infer that CZ was aware of illicit activity, citing a previous case where a judge made that same inference. They said, given that inference is in that case a part or a function of how the court came to that conclusion, we argue that supports a similar finding here. Judge Jones did not seem to totally buy that.

Starting point is 00:05:33 Instead, in his initial comments, it seemed that Judge Jones, as Nick put it, quote, largely agrees with the probation office. Total level is 12, which would lead to a 10 to 16-month prison term in one to three years supervised release. Now, that, of course, was not the ruling. After that, both the DOJ and the defense had a chance to present. Nick writes, the DOJ attorney said CZ deliberately tried to try to tap the U.S. financial system. They said, quote, violating the law was integral to that endeavor. We're not guessing here. Mr. Zhao said that himself, ask for forgiveness, not permission. The DOJ said that yes, CZ deserved credit for coming in, but that credit was already reflected in the plea

Starting point is 00:06:08 agreement. The DOJ is not shy about the fact that they want to set an example here. They said, if Mr. Zhao does not face incarceration after deliberately and willfully planning to violate U.S. law to build the largest crypto exchange in the world and get rich in the process, then no one will face incarceration, and the BSA will, for intents and purposes, be a dead letter. Interestingly, the DOJ made sure to not draw equivalence between CZ and SBF, saying explicitly, quote, we are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster. Ultimately, they concluded, a probationary sentence here will incentivize others to break the law and do it in the largest scale possible.

Starting point is 00:06:41 Once again, the judge was skeptical. Judge Jones said, paraphrasing and quoting Nick, your recommendation is two times the sentencing guidelines, would that not lead to sentencing disparity? The DOJ responded, No single defendant has been responsible for so much. Quote, We don't believe it would be a sentencing disparity. The disparity is in the magnitude of the conduct.

Starting point is 00:07:00 Then it was time to hear from others. Nick writes, the probation officer reiterated a five-month recommendation, said if not incarceration that home arrest should be here in the United States. One of CZ's defense attorneys pointed to letters of support. That CZ's mother, son, nephew, and sister were all in attendance. That CZ came back to the U.S., contrasting it with another case where a defendant spent four and a half years fighting extradition. The defense attorney continued to espouse CZ's cooperation, as well as his direction to get Binance to cooperate. From there, Nick wrote,

Starting point is 00:07:29 Judge now asking defense attorney questions, including verifying that CZ will benefit from continued ownership of Binance. Defense said he's not controlling it. Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks, do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. Ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes

Starting point is 00:08:14 Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. All right, breakers. Consensus 2024 marks the 10th gathering of the biggest event that's devoted to all sides of the crypto, blockchain, and Web3 ecosystems. Join pioneering fingers and builders as they delve into the future of Defi and explore game-changing tech, from AI to ZK Proofs and everything in between. The event is three days of jam-packed content, networking, and so much more. Some of the speakers at the event include Chris Dixon, the founder and

Starting point is 00:08:52 managing partner at A16Z Crypto, Sergey Nazaroff, the co-founder of Chainlink, Kathy Wood, the CEO of ARC, Hester Perce, commissioner of course, from the U.S.S. SEC, and Tom Emmer, Republican Majority Whip for the U.S. House of Representatives. Visit Consensus-24.com to learn more and save 15% on registration with the code breakdown. That is 15% on registration with the code breakdown. So basically it goes back and forth like this for a while. CZ gets on the stand and reiterates many of the things that he's already said. And then finally, it was the judge's turn to actually make the sentence. It was fairly clear from the beginning which broad direction this was going to go.

Starting point is 00:09:31 The judge said to CZ, everything I see about you and your characteristics are of a mitigating nature. Judge Jones said that it mattered that CZ had taken significant steps to cooperate with law enforcement, but at the same time, there was a clear failure, and this failure was not victimless. Better money laundering means better support for drug trafficking, terrorism, and more. It was clear that the judge was moved by the letters that were sent. Judge Jones said that he had read every single one of the 161 letters, saying, I don't think I've ever seen this volume of letters.

Starting point is 00:10:01 The judge clearly came away with a picture of CZ as someone who was a dedicated family man, who was extremely driven, but also one who, as the judge put it, had the resources and wherewithal to comply with U.S. regulations. The biggest damning factor, it seems, was CZ's statement about better to ask forgiveness than permission. Ultimately, the judge said, you have the ability and will to rehabilitate because of this tough lesson. And when all was said and done, the judge rejected the 36-month request by the DOJ and sentenced CZ to four months in prison. Now, one take was that this simply wasn't enough to actually do the job of discouraging anyone from this sort of money laundering in the future. This was broadly speaking the take outside of

Starting point is 00:10:39 the crypto industry. However, for those in the crypto industry, four is a significant number when it comes to CZ. During the bear market, CZ very famously typed up a list of his resolutions. Number four was to ignore the fud and the haters, and over the subsequent years, became something of a rallying cry. Anytime there was something published about a rumor and uendo around Binance, CZ would simply tweet four, or someone would publish a picture of CZ holding up four fingers. The meaminess of it was almost too much for crypto Twitter to handle. chain called it the best possible outcome for crypto Twitter, and it's hard to deny that. Autism Capital said,

Starting point is 00:11:15 CZ really is the best to ever do it. Unlike Sam, he didn't lose anyone's money. He's still a hero to all. He literally memed his prison sentence into existence. He does four months in the easiest camp prison playing pickleball and meditating, walks away with $47 billion. Now, whatever CZ's actual net worth is, it's not just the people of Twitter, but in fact Bloomberg who's suggesting that he will be the richest inmate ever.

Starting point is 00:11:36 Gotta love the crypto industry, always setting new race. records. Already, crypto-twitter has decided that the release of CZ will signal the start of the next phase of the bull market. Now, wildly, as we were waiting for all of this to go down, news broke that another arrest had occurred in the crypto space, that the extremely controversial, and in many circles much reviled Roger Verre, had been arrested in Spain for tax evasion and tax fraud. We will, I'm sure, get all into that tomorrow, but for now, the second big sentence of this new cycle has been handed down. the founder of Binance will spend four months in prison. Big thank you to my sponsor of today's show.

Starting point is 00:12:14 Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.

The Breakdown - Former Binance CEO CZ Gets 4 Months In Jail (Because Of COURSE He Got 4)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.