Combination revealing Previous FTX CHIEF EXECUTIVE OFFICER, Sam Bankman-Fried (L) and Zhao Changpeng (R), creator and ceo of Binance.
Mike Segar|Reuters|Benjamin Girette|Bloomberg|Getty Images
An arc competition in between single crypto titans was brought to a close at a government court house in Seattle on Tuesday when Binance creator Changpeng Zhao was handed a sentence of 4 months behind bars. A month previously, on the contrary shore in midtown Manhattan, FTX’s Sam Bankman-Fried obtained a 25-year jail sentence for his criminal offenses.
It appeared an underwhelming and rather anti-climactic coating to a lengthy fight in between Zhao and Bankman-Fried, 2 guys that were famous opponents, along with vital guardians of the $2.2 trillion crypto field.
For several years, Binance’s Zhao and FTX’s Bankman-Fried taught the power of decentralized, electronic money to the masses. Both were bitcoin billionaires that drove Toyotas, ran their very own worldwide cryptocurrency exchanges and invested a lot of their specialist job marketing the general public on a brand-new, tech-powered globe order; one where an alternate economic system included indeterminate online coins would certainly free the suppressed by getting rid of intermediaries like financial institutions and the overreach of the federal government.
Eventually, both additionally aided crypto movie critics and regulatory authorities make the instance that the doubters had actually been right the whole time â $ ” the market was swarming with grifters and scammers bent on making use of brand-new technology to perform old-time crimes.
Bankman-Fried, 32,  was founded guilty of 7 criminal counts in very early November, consisting of fees connected to swiping billions of bucks from FTX’s consumers. Much less than 3 weeks after Bankman-Fried’s sentence, 47-year-old Zhao begged guilty to criminal charges and tipped down as Binance’s chief executive officer as component of a $4.3 billion negotiation with the Division of Justice.
Yet, much else regarding both is starkly up in arms â $ ” maybe most especially, the 296-month distinction in their particular jail sentences.
” Contrasting CZ and SBF, both numbers became popular in the cryptocurrency field however under significantly various situations,” stated Braden Perry, a previous elderly test legal representative for the CFTC.
” The nature of their affirmed criminal offenses mirrors various elements of the ‘dark’ and illegal edges of crypto: CZ’s instance appears to concentrate on governing and conformity failings, while SBF’s instance rests on straight economic misbehavior and deceptiveness,” Perry stated.
Without a doubt, the inconsonant effects for both previous crypto Chief executive officers lay bare that both was, ultimately, absolutely nothing alike in organization or in individual transactions.
A story of 2 bitcoin billionaires
It was the little points â $ ” the kind of information that you do not observe initially and are commonly tough to verbalize the value of when you do â $ ” that betrayed the much more significant distinctions in between both previous Chief executive officers.
Take Manfred, a used packed pet that Bankman-Fried has actually lugged worldwide with him because birth, from The golden state, to Hong Kong, to the Bahamas, and afterwards back home to Palo Alto, where the FTX creator lived under home apprehension up until he was remanded to wardship for tampering with witnesses.
The 32-year-old toy, which has lost much of its shape and identifying features, sat on the bed of his sparsely decorated room in his parents’ house on Stanford University’s campus in his final days before incarceration. It was a harmless prop at first glance, more a charming nod to an adolescent spirit than the sort of window into Bankman-Fried’s inner psyche that some of those who knew him would later attempt to turn it into.
Two of Bankman-Fried’s former colleagues and friends took turns at speculating on its meaning. One thought that SBF kept the stuffed animal close because “he doesn’t need to share Manfred with anyone,” according to reporting from “Going Infinite,” the Michael Lewis book that profiled Bankman-Fried. Another guessed, “I think it is very, very important for him to have an emotional attachment.”
Lewis himself writes that “Sam didn’t care about real animals” and that it had, in fact, been “an expected value calculation, rather than emotion, that had led him to go vegan.”
Bankman-Fried did have a history of intimacy issues. Part of it, according to his family, friends, work colleagues, criminal defense attorneys, and even Bankman-Fried himself, had to do with his inability to feel much of anything, for anyone, including romantic love interests.
FTX founder Sam Bankman-Fried leaves the U.S. courthouse in New York City on July 26, 2023.
Amr Alfiky | Reuters
His lawyers described him as often struggling socially, disclosing that in high school, Bankman-Fried “realized he was anhedonic, or unable to experience joy or pleasure.”
“As Sam describes it, he experiences negative emotions in ways that are not very different from many other people â neither much more extreme, nor much less negative. But he does not feel pleasure, or happiness, or joy, even when something very good happens to him,” a court filing in SBF’s criminal court docket reads.
Lawyers for Bankman-Fried added that it was not a disease or condition to be “cured,” but instead, “a fundamental aspect” of his identity. Lewis relayed an exchange with SBF in which Bankman-Fried said that smiling was the biggest thing that he “most weirdly” couldn’t do.
Bankman-Fried never married, has no children, and according to Lewis, moved himself and his company headquarters to the opposite side of the planet, twice, partly to avoid committing to his ex-girlfriend, ex-colleague, and the prosecution’s star witness against him: Alameda CEO Caroline Ellison.
The government’s case against him â which resulted in a unanimous guilty verdict in just a few hours despite it being a complicated month-long trial involving hundreds of exhibits and nearly 20 witnesses â was largely built upon the testimony of the people who knew Bankman-Fried best. The list included his former C-suite, ex-roommates, and ex-best friends going back to high school.
And so, Manfred took on new meaning, and began to embody much of what appeared to onlookers as a very lonely existence, in which the people closest to Bankman-Fried were the ones to seal his fate behind bars.
While Bankman-Friend’s parents were staunch defenders of their son in court, CZ, by contrast, had many who know him best leap to his defense. Zhao’s wife, his current lover, two of his five children, and dozens of Binance employees all penned the judge to plead for mercy in sentencing.
“I am a partner in the work of Changpeng Zhao (abbreviated CZ) and I am also the mother of his three children,” reads a note submitted by Yi He, a co-founder of Binance and Zhao’s current romantic partner. “Although the mainstream media tries to portray CZ as an evil bad actor, millions of community users and ordinary people regard him as a hero of the industry, because CZ has always insisted on justice.”
Changpeng Zhao, former CEO of Binance, arrives at federal court in Seattle, Washington, April 30, 2024.
David Ryder | Bloomberg | Getty Images
Zhao’s wife, Weiqing “Winnie” Yang called him a “self-made man” who “has never owed money to others and has not had any liabilities.” Yang added that Zhao has “taken the greatest care” of her and their shared children. Their daughter, Rachel Zhao, implored the judge “to consider her father’s positive attributes; to not define my father’s character solely through this one incident and consider the entirety of his character,” emphasizing that he was “the best father.”
Differences between the pair also showed up in the way they presented themselves.
Whereas Zhao maintained a military-style buzzcut, Bankman-Fried was known for his iconic and unwieldy mop of curls. CZ bought clothes on Amazon, but his look and demeanor were buttoned-up. SBF, who similarly opted for simple dress (usually a loose T-shirt and cargo shorts), appeared perpetually disheveled, whatever the occasion. At the beginning of his trial, SBF sported a fresh haircut and wore suits, but by its end, his curls were wild again. Zhao wore a fitted navy suit and light blue tie at his sentencing, versus the beige jailhouse jumpsuit donned by Bankman-Fried.Â
But perhaps the greatest distinction between the two relates to the command they held over those around them.
Zhao had an air of the consummate professional, with a strong appetite for total control of his sprawling enterprise. Bankman-Fried, who takes medication for the neuro-developmental disorder attention-deficit/hyperactivity disorder, sought a similar level of control, but admitted on the stand that mistakes were made, in part, because he was overwhelmed. Bankman-Fried’s psychiatrist unequivocally made clear to the judge that without prescribed medication, Bankman-Fried would experience a return of his symptoms and be “severely negatively impacted in his ability to assist in his own defense.”
Reuters reporting found that also as CZ’s crypto exchange expanded its hiring right into typical money and governing skill swimming pools, “Zhao’s limited control over his firm was undiminished.” Binance established greater than 70 entities, and according to Reuters, Zhao directly regulated the majority of them.
Cryptocurrency exchange Binance creator and chief executive officer Changpeng Zhao talks at a Binance 5th wedding anniversary occasion in Paris, France, July 8, 2022. Â
Staff|Reuters
Prosecutors likewise verified with testament and evidentiary displays their story of Bankman-Fried silently remaining to foretell at his crypto bush fund, Alameda Research study. They revealed that his decision-making power over the $32 billion crypto realm he developed was outright, which all misdeed came from choices touched, or straight made by, Bankman-Fried himself. However unlike CZ, Bankman-Fried supervised a company with disorderly and falsified accounting that inevitably resulted in the implosion of the firms he started and the burglary of billions of bucks of client cash.
And after that there was the manner in which each aimed to craft their public character.
CZ approved personal privacy. The letters sent by his charming companions and youngsters were an unusual inside take a look at Zhao’s individual transactions. And instead of require to traditional media to share his protection, CZ clammed up and accepted the feds.
Shirking the recommendations of all advise, Bankman-Fried took place a media strike to speak about the implosion of his crypto realm. Most of those declarations inevitably showed up in the federal government’s effective test versus him in October and November 2023.
” SBF resolutely did not resolve, breached his bond problems, talked regularly to journalism in his very own support and appeared to do not have a display screen of authentic, wholehearted regret also at his very own sentencing,” stated Yesha Yadav, legislation teacher and associate dean at Vanderbilt College.
” Component of CZ’s considerations in resolving with Justice in November might have been specifically to make this factor â $ ” that his conduct stands greatly unlike the brazen habits of SBF,” Yadav included.
The power of claiming you’re sorry
In Seattle, Zhao’s sentencing was a reasonably silent event, with an ambiance that was much more low-key than the circus bordering Bankman-Fried’s time in court.
” This case looked like the prosecution of a Wall surface Road exec,” said Mark Bini, a previous state and government district attorney.
Zhao additionally revealed his regret, approving obligation for his criminal offenses and informing the court he regreted his activities. It stood in plain comparison to Bankman-Fried’s last attract the court, which did not have any kind of type of actual admission of sense of guilt.
Court Lewis Kaplan, that punished Bankman-Fried to 25 years behind bars, kept in mind throughout his sentencing hearing that he had actually never ever listened to “a word of regret for the compensation of dreadful criminal offenses” from Bankman-Fried which in his thirty years on the government bench, he had actually “never ever seen an efficiency” like SBF’s test testament.
If Bankman-Fried was not “outright existing” throughout interrogation by district attorneys, he was “incredibly elusive,” Kaplan stated.
” Instead of approving obligation, Bankman-Fried pressed his instance to test where he existed and perjured himself and was founded guilty by frustrating proof,” previous government district attorney Neama Rahmani informed CNBC.
To make sure, the Zhao and Bankman-Fried situations are really various.
While much of Bankman-Fried’s realm was a mirage, Zhao’s procedure was tied with suspicious organization strategies under the hood.
Bankman-Fried and various other leaders at FTX took billions of bucks in client cash. Actually, throughout the criminal test of Bankman-Fried, both the prosecution and protection concurred that $10 billion in client cash that was being in FTX’s crypto exchange went missing out on, with several of it approaching repayments for real estate, recalled loans, venture investments and political donations. They also agreed that Bankman-Fried was the one calling the shots.
The key question for jurors was one of intent: Did Bankman-Fried knowingly commit fraud in directing those payouts with FTX customer cash, or did he simply make some mistakes along the way? Jurors decided within a few hours of deliberation that he had knowingly committed fraud on a mass scale.
The government’s beef with Zhao and Binance was different.
Perry said that the connection with foreign crime, including money laundering and breaching international financial sanctions, was key to Binance’s undoing. There was, however, no pursuit of criminal fraud of its customers’ money â a key distinction from the case of Bankman-Fried.
Instead, three criminal charges were brought against the exchange, including conducting an unlicensed money-transmitting business, violating the International Emergency Economic Powers Act, and conspiracy. Binance agreed to forfeit $2.5 billion to the government, as well as to pay a fine of $1.8 billion, for crimes which included allowing illicit actors to make more than 100,000 transactions that supported activities such as terrorism and illegal narcotics.
Zhao and others were also charged with violating the Bank Secrecy Act by failing to implement an effective anti-money-laundering program and for willfully violating U.S. economic sanctions “in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law,” according to the Justice Department. The DOJ is recommending that the court impose a $50 million fine on Zhao.
Zhao turned a blind eye to money laundering, explains Rahmani, but he pleaded guilty and accepted responsibility for his actions. Bankman-Fried, on the other hand, stole money from clients and used them for lavish personal expenses.
“That’s why Bankman-Fried received a significantly longer prison sentence than Zhao,” Rahmani said.
Los Angeles corporate law attorney Tre Lovell said that, unlike Bankman-Fried, who was convicted of fraud, Zhao hasn’t been charged with fraud or other crimes deserving of a longer sentence.
“In addition, his letter to the judge does reflect remorse, discusses his making of poor decisions, and indicates that the Binance platform has instituted strict anti-money laundering controls at his direction,” Lovell said.
“SBF’s case involved allegations of fraud and misuse of customer funds, which are typically viewed as more directly deceitful and financially damaging to a broader array of individuals than compliance failures (like inadequate AML programs),” Perry said. Compliance failures, while serious, might be seen as a failure of oversight rather than active malfeasance, according to Perry.
“Fraudulent actions directly undermine trust and suggest intentional wrongdoing, which can lead to harsher public and judicial responses,” he added.
Money makes all the difference
Unlike SBF, CZ didn’t have his wealth wiped out by bankruptcy of the crypto company he founded. And as he cooperated with the government and pleaded guilty, his assets weren’t seized.
Despite the fact that Zhao is being put behind bars, his controlling stake in Binance means that he will continue being one of the wealthiest people in crypto today. Zhao is widely reported to have an estimated 90% stake in Binance, and his fortune is largely derived from his equity ownership in the company.
Binance is by far the world’s largest cryptocurrency exchange by trading volume, processing $18.1 trillion worth of trading volume in 2023, according to data from crypto market data firm CCData. And even though Binance has seen its market share drop to 41.6% since Zhao stepped down as CEO in November 2023, the company remains the dominant player overall â leagues ahead of South Korean exchange Upbit, Dubai-headquartered Bybit, and U.S. giant Coinbase.
While Binance has been convicted of extremely serious charges, it still remains a lucrative operation, according to Yadav. Binance is profitable and solvent, meaning that it has a hefty war chest to settle fines.
FTX, on the other hand, remains in bankruptcy court in Delaware.
“FTX has been revealed to have been a criminal enterprise that is now headed into liquidation owing to its assessed inability to salvage any brand and use value,” Yadav said.
Notably, because Zhao pleaded guilty to only one count of violation of the U.S. Bank Secrecy Act (BSA), he is regarded as a first-time offender and thus reached a settlement with federal authorities to step down as CEO and not relinquish his interest in the company or have assets frozen.
“Typically, personal assets that are not directly linked to the criminal activity might remain unaffected,” Perry said. “His assets could also be managed on his behalf while he is incarcerated.”
That’s a different situation from Sam Bankman-Fried, who saw his wealth reduced to zero after his crypto empire collapsed into bankruptcy in 2022.
“In relation to CZ’s personal wealth …Â he would still be able to retain his share in Binance, as well as maintain his crypto holdings which also contribute an unknown, yet material, amount to his overall wealth and net worth,” Joshua de Vos, research lead at CCData, told CNBC via email. “Since there is no misappropriation or bankruptcy proceedings, it is highly unlikely that CZ would see his wealth reduced to zero as was the case with SBF,” de Vos said.
As for what’s next, new FTX CEO John Ray III and his team of restructuring advisors continue their effort to claw back cash, luxury property, and crypto, to try to make customers whole. Bankman-Fried, meanwhile, is appealing the verdict.
Zhao said in a court filing that his future ambition lies in bringing blockchain tech to biotech startups.
Binance isn’t out of the woods yet. The Securities and Exchange Commission was notably absent from the exchange’s $4.3 billion settlement with the U.S. government. Meanwhile, two of its employees remain in jail in Nigeria awaiting trial for alleged crimes committed by the exchange.
â CNBC’s Ryan Browne contributed to this report.
