Binance to Pay Billions, Exit U.S. and Appoint Monitor; "CZ" Pleads Guilty to Money Laundering

Binance to Make ‘Complete Exit’ From U.S., Pay Billions to FinCEN, OFAC on Top of DOJ Settlement

Crypto exchange Binance will leave the U.S., pay billions in fines and appoint a monitor for five years to settle charges with the Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Asset Control (OFAC), the U.S. Treasury Department’s money laundering and sanctions watchdogs, according to press releases shared Tuesday.

The exchange will pay $3.4 billion to FinCEN and $968 million to OFAC as part of these settlements, which saw both agencies accuse Binance of violating the Bank Secrecy Act and sanctions programs. Binance had already said it will pay $4.3 billion in fines and forfeitures to the U.S. Department of Justice to settle charges it violated sanctions law and failed to maintain a proper know-your-customer program. Changpeng “CZ” Zhao, the exchange’s founder and CEO, is resigning from his role as part of that settlement.

In addition, Binance will make a “complete exit” from the U.S. as part of its settlement with FinCEN and appoint a monitor for five years who will oversee the exchange’s sanctions compliance program. The U.S. Treasury Department will have access to Binance’s record and systems during that time.

Binance Founder Changpeng Zhao Pleads Guilty to Money Laundering Violations

Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, pleaded guilty to money laundering violations, the government said on Tuesday, a stunning blow to the most powerful and influential figure in the global crypto industry.

Binance itself also pleaded guilty and agreed to pay $4.3 billion in fines and restitution to the government, according to federal authorities. Under the agreement, Binance reached settlements with the Justice Department, the Treasury Department and the Commodity Futures Trading Commission, which have all been investigating the company for years.

As part of his guilty plea, Mr. Zhao agreed to pay a $50 million fine and step down from his role as the company’s chief executive. Mr. Zhao faces up to 18 months in prison under federal sentencing guidelines, but prosecutors are keeping open the possibility of asking for a stiffer penalty, according to senior Justice Department officials.

Binance Founder Changpeng ‘CZ’ Zhao Released on $175M Bond, Will Be Sentenced in February

Binance founder and former CEO Changpeng “CZ” Zhao has been released from custody on a $175 million personal recognizance bond.

Zhao pleaded guilty to violating the Bank Secrecy Act in court earlier on Tuesday, after federal officials alleged he directed Binance to allow U.S. customers to use the platform without conducting proper know-your-customer or anti-money laundering checks.

According to a court filing, he’s posting $15 million held in a trust account by Davis Wright Tremaine (separate from the bond) and agreeing to forfeit funds if he violates the terms of his release. He’s also finding two guarantors, who are pledging $250,000 and $100,000 respectively. A sentencing hearing has been scheduled for Feb. 23, 2024, at 9 a.m. Pacific Time.

Is Binance Big Enough to Survive a $4.3B Fine and Founder CZ’s Ousting?

In many ways, Binance got off easy. It has to pay a massive penalty, yes, but it looks like it has money on the books to survive. Binance will also need to appoint an independent monitor and send compliance reports to the U.S. government. ConsenSys chief lawyer Bill Hughes said this will be a huge boon to U.S. criminal investigators:

“All Binance transaction records that exist today, which may very well go back to the beginning of the exchange, are there for the taking by law enforcement. They will show how illicit payments flowed through the exchange. Law enforcement will have full access to an ocean of intelligence about illicit flows inside the blackbox of that exchange to match against the immutable record of transactions you find on-chain.”

SEC Defeats Summary Judgment in Insider-Trading Suit Alleging “Shadow Trading”

The SEC defeated a motion for summary judgment brought by a defendant whom the SEC accused of engaging in insider trading based on news about a not-yet-public corporate acquisition when he purchased securities of a company not involved in that deal. The November 20, 2023 decision in SEC v. Panuwat (N.D. Cal.) keeps alive the SEC’s theory of “shadow trading,” which involves trading the securities of a public company that is not the direct subject of the material nonpublic information (“MNPI”) at issue.

The Panuwat decision does not appear to break new ground under the misappropriation theory of insider trading in light of the particular facts alleged. But the “shadow trading” theory warrants attention because it can potentially have wide-ranging ramifications for traders by broadening the scope of the types of nonpublic information that might be deemed material.

China Rounds Up 31,000 Suspects in Sweeping ‘Pig-Butchering’ Crackdown

For months, China has tried to break up cybercrime syndicates that operate from shadowy compounds across the border in neighboring countries and swindle people around the world.

The scammers call the fraud “pig-butchering”: They “fatten” victims by gaining their trust online, convince them to transfer large sums of money and then “butcher” them by absconding with the loot.

The scale of Beijing’s crackdown is now becoming clear.

Some 31,000 suspects have been rounded up in Myanmar—a notorious hub for such crimes—and handed to Chinese authorities since September, China’s Ministry of Public Security said this week. Several “fraud dens” were eradicated, dealing a severe blow to the networks, the ministry said.

High Interest Rates Undercut Consumer Demand, Leads to Securities Suit Filing

Throughout the year, macroeconomic considerations have been an important factor in the number of securities class action lawsuit filings, including economic inflation, and supply chain and labor supply disruption. Another important factor has been rising interest rates, which, among other things contributed to several high-profile bank failures earlier this year, and which in turn led to the filing of follow-on securities suits.

In the latest example of macroeconomic factors affecting businesses and translating into a securities class action lawsuit filing, a plaintiff shareholder has filed a securities class action lawsuit against the standby power generator company, Generac Holdings, after the company announced that declining consumer spending due to rising interest rates caused the company second quarter 2023 revenues to fall below expectations. A copy of the November 21, 2023, complaint can be found here.

U.S. CFTC Chief: Nothing Changed After FTX Meltdown to Empower Agency to Prevent Repeat

U.S. regulators don’t have any more authority now to head off another major crypto collapse than they did when FTX imploded and took much of the industry with it, said Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam.

“Nothing has changed, and we could be in a position where another FTX-type event happens,” Behnam said Wednesday at the Financial Markets Quality Conference 2023 at Georgetown University. However, he noted that the crypto investing enthusiasm has calmed since the months before FTX, and “the market environment is much, much different today than it was a year ago.”