Changpeng Zhao’s sentencing delayed as Binance named in October 7 terror suit

Getting your Trinity Audio player ready...

Binance founder Changpeng ‘CZ’ Zhao will have to wait a while longer to learn how much time he’ll spend in a U.S. prison cell, while his significant other in Dubai wants to expose corruption among Binance staff.

CZ was scheduled to be sentenced on February 23 after pleading guilty last November to violating the Bank Secrecy Act and causing a financial institution to do likewise. But a February 12 filing with the U.S. District Court for the Western District of Washington revealed that the sentencing by Judge Richard A. Jones has been pushed back to April 30 at 9 am. No reason was given for the delay.

CZ is currently free on a $175 million bond but has been barred from leaving the United States. CZ has repeatedly asked the court for permission to return temporarily to his former base of operations in Dubai to be with family members but these requests have been rejected due to the very real possibility that CZ might not return to learn his fate.

The United Arab Emirates lacks an extradition treaty with the U.S., and Judge Jones agreed with prosecutors that CZ’s enormous wealth makes him a prime flight risk. Also, the sentencing guidelines for CZ’s crimes may top out at 18 months, but prosecutors have indicated that he’s technically eligible for up to 10 years behind bars, giving him additional motivation for skipping bail.

The delay means that CZ’s frenemy, Sam Bankman-Fried (SBF), will learn his fate before CZ. The fallen founder/CEO of the collapsed FTX exchange is scheduled to be sentenced on March 28 after being found guilty on seven counts of wire/securities fraud and conspiracy last November.

There are some important distinctions between the two disgraced execs. While CZ/Binance reached a $4.3 billion settlement with federal prosecutors, the self-deluded SBF made the ill-informed decision to fight the multiple charges filed against him despite ample evidence of his guilt supplied by his former co-workers.

Then again, the evidence against SBF didn’t involve his exchange knowingly looking the other way when presented with evidence that terrorists were using their platform. Whereas Binance’s internal chats exposed a shockingly cavalier tone among execs who didn’t care who used the exchange so long as Binance got its cut. Given all that’s transpired on the terror front over the past six months, CZ’s historic disinterest in policing his platform could come back to haunt him.

Aiding, abetting, never forgetting

This haunting may already be underway. CZ, along with Binance, was among the defendants named in a civil suit filed on January 31 in the U.S. District Court for the Southern District of New York. The suit was filed on behalf of “United States citizens who were murdered, maimed, taken hostage, or otherwise injured in unspeakable acts of terror perpetrated by Hamas and other terrorist groups in the State of Israel on October 7, 2023.”

The filing cites Binance’s history of having “processed numerous transactions associated with Hamas and related Palestinian terrorist groups between 2017 and mid-2023, providing a clandestine financing tool that Binance deliberately hid from U.S. regulators.” The filing adds that Binance and CZ “refused to put into place the legally-required-infrastructure mandated under U.S. law to stop terrorism financing.”

The plaintiffs maintain that the assistance that Binance and CZ provided to terror groups like Hamas “was a substantial factor in causing Plaintiffs’ injuries. Moreover, the October 7 Terrorist Attacks, as well as Plaintiffs’ injuries in the attacks, were foreseeable results of that substantial assistance.”

The plaintiffs accuse CZ/Binance of aiding and abetting designated foreign terrorist organizations and providing material support to the same. The plaintiffs are seeking damages to be determined at trial, treble damages, along with legal fees and other costs.

In arguing jurisdiction, the plaintiffs cite not only Binance’s lengthy history of accepting New York customers in defiance of U.S. law but also claims made in last year’s civil complaint filed by the U.S. Commodity Futures Trading Commission (CFTC) that “[a]t least two of Binance’s VIP’ market maker’ customers were quantitative trading firms headquartered in New York.”

The suit also names Iran and Syria as defendants, although it’s unlikely that either country will pay much attention to the complaint. Binance and CZ, on the other hand, are far more vulnerable, and thus, they ignore this suit at their peril.

The enemy within

Meanwhile, Binance is trying to root out suspected crooks within its own ranks by offering millions of dollars for tips that expose insider trading.

Earlier this month, Binance co-founder Yi He (also the mother of CZ’s children) tweeted a thread about “the leakage of currency listing information on Binance, usually for projects that have not yet released tokens.” She was referencing Binance’s decision to list problem-plagued developer Sky Mavis‘s RON token, the value of which jumped by 17% in the 24-hour period prior to its listing announcement and then plunged 25% following the listing.

Yi He said an internal probe of the debacle exposed the need to “strengthen internal management” of its currency-listing process, with a warning to staff that “if there is any information leakage in the project for any reason, you will be warned once and fired twice.” Yi He also warned project developers whose tokens are being considered for listing that “if there is a leak, the listing will be cancelled.”

To keep everyone honest, Yi He put a bounty on corrupt execs: “If you verify that Binance team members are corrupt, we will keep your identity confidential and provide you with a security vulnerability bonus of US$10,000 to US$5 million.” (Is it too late to rat out CZ?) She added that finking on your co-workers is “much easier and more profitable than the rat warehouse.” Staffers who are “verified corrupt” and turfed will find any projects they subsequently join condemned to a “permanent blacklist of Binance.”

Speaking of sketchy OPSEC, Yi He also recently tweeted a screenshot of what looks like her LinkedIn account inviting token projects to “apply to get listed on Binance.” Yi He clarified that she does have a LinkedIn account, “but I have long forgotten the password; I am also not in charge of discussing with projects for a potential listing.” Then again, how do we know Yi He’s X/Twitter account isn’t an imposter? Hmm?

Significant (but not urgent) risk

Binance apparently suffered a very different kind of leak when a treasure trove of internal data was found on a GitHub repository that was open to the public. The data was reportedly on the site for months before someone at Binance filed a copyright takedown request in late January.

404 Media described the stolen data as a “highly sensitive cache of code, infrastructure diagrams, internal passwords, and other technical information.” Incredibly, 404 Media said it queried Binance on the issue on January 5 and yet it wasn’t until January 24 that Binance filed its takedown request.

The delay in acting is even more curious given that Binance’s takedown request said the exposed data included “internal code which poses significant risk to Binance and causes severe financial harm to Binance and user’s confusion/harm.” The source of the leak—the GitHub account was named ‘Termf’—has yet to be identified (at least, not publicly), but perhaps Binance should start by quizzing all those rats in their warehouse.

You keep using that word; I don’t think it means what you think it means

Earlier this month, Binance announced that its former senior VP of compliance, Steve Christie, was returning to the fold as its new deputy chief compliance officer. Christie will work alongside Binance’s chief compliance officer, Noah Perlman, the former Gemini exec who also played a role in SBF’s ham-fisted effort to circumvent U.S. banking oversight by buying one himself.

While the company said Christie returned following last year’s decision to “focus on his family and health,” he was among the numerous top Binance execs who flew the coop last year as it became clear that U.S. federal authorities had all the dirt they needed to inflict major pain on the company and anyone working there.

Nonetheless, Binance quoted Christie saying he was “impressed by what Binance has accomplished on the compliance front since I stepped away momentarily.” (Seven months, but whatever.) Christie said he “always believed that no other crypto exchange dedicates as much effort in compliance as Binance.”

Case in point: In early January, regulators in Uzbekistan slapped Binance with an $8,300 fine for operating in the country without a license. Binance was one of several prominent exchanges whose websites were blocked locally in August 2022 (not long after Christie joined Binance from rival exchange Kraken).

The National Agency for Perspective Projects of Uzbekistan (NAPP) sent Binance a message regarding its regulatory shortcomings and asked it to come into compliance. But NAPP says Binance “did not take the necessary measures” to acquire a license.

Last week, NAPP said it would ask a court to compel Binance to pay the fine, which NAPP’s First Deputy Director Vyacheslav Pak said “naturally, as we expected, they refused to pay.” Naturally, as we expected. Such compliance. Much effort.

Frankly, we get why Christie chose to return to Binance’s compliance department. After all, how cool must it be to get paid for disregarding emails, letters, and phone calls demanding you stop doing this or that in this or that country? Good work if you can get it, as they say.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.