Many rich people go to prison, but this man trumps them all. Richer than Jordan Belfort and Sam Bankman-Fried, combined with a peak net worth of $96 billion. Here’s how he went from one of the richest people on the planet, to behind bars and somehow, back to the spotlight.
Chapter 1: Risky Beginnings Setup This is Changpeng Zhao. You might not know him, but you might know his company: Binance. Changpeng Zhao, who we’ll call “CZ” from now, saw the explosive rise of Crypto in the 2010s.
Coins like Bitcoin, Ethereum and XRP were growing in value, and quickly. CZ started off as an enthusiastic investor in the space. In fact, in 2015, he sold his apartment to buy Bitcoin at $600.
Clearly, this gamble paid off very well, but CZ had a much more lucrative idea. Not a new coin, but an exchange for coins. This is where Binance comes in.
His vision was to “increase the freedom of money globally. We believe that by spreading this freedom, we can significantly improve lives around the world. ” CZ wanted a platform where fast transactions and the user experience were the top priorities.
There was quite a bit of interest in Binance, so CZ looked to raise some funds. Tension In 2017, Binance performed an “initial coin offering”. It was essentially a way to raise funds without CZ giving up too much ownership of Binance, but still providing a return for investors.
But there was a problem. CZ and Binance were based in China. But as they were preparing for their first fundraising, the Chinese government had just banned ICOs.
Crypto was a new world of finance, and as a consequence, most ICOs were actually scams. Over 80% in 2017. "But CZ needed the funding if he wanted to make Binance a big thing.
So, he moved the company. From China, to Japan, then continued with the ICO. CZ managed to raise $15 million for Binance.
And by the end of the year, Binance had attracted 1. 5 million users. CZ soon began to expand the platform into more countries.
From Japan, to the United States, Germany, the United Kingdom, and many more. Then, something unbelievable happened. Binance began to explode.
Jumping to 13 million users in 2018, then to 21 million in 2020. Then, in 2023, about 90 million users were on Binance. CZ had hit it big.
Binance was now the biggest Crypto exchange in the world. But there’s still one question to answer: How did Binance get popular? What do they actually do?
Resolution / Payoff Binance had three priorities. CZ prioritized fast transactions, unbelievably fast. In fact, Binance could handle 1.
4 million transactions per second. Next were the transaction fees, which were extremely low. Competitors like Coinbase charge 1.
49% per transaction when trading crypto. Binance charges just 0. 1%.
A seamless, fast, and cheap user experience made Binance the obvious choice for many. But there was something else. Crypto had a surge of new coins emerging, and almost all of them could be exchanged on Binance.
Even if they were risky for traders, for him, it was just a way to get more customers. Binance had all the right elements in place to capture the market, and it paid off. By the end of 2021, CZ’s net worth had surged to $96 billion.
In a few short years, he had risen to the top of the world of finance, and become one of the richest people on earth. But that’s when things started to go wrong for Binance. Or rather, things started to catch up with them.
Chapter 2: Fraud Setup In order to grow so large so fast, Binance needed global users. But in doing so, they took a few shortcuts. For starters, Binance was operating without a license in many countries: UK, Hong Kong, Germany, Japan, and more.
They faced constant scrutiny from governments. The biggest case was the United States, where Binance wasn’t allowed to operate. CZ however, was more interested in growth, than following regulations.
According to the US Department of Justice, CZ told employees it was “better to ask for forgiveness than permission,” and prioritized Binance’s growth over compliance” (source). While being rightfully harassed by governments, Binance continued to operate. As it turns out, Binance was doing more behind the scenes for the sake of growth, at the expense of its users.
Tension Customers who had Crypto or cash with Binance believed their money was secure and separate. This is how most exchanges and banks operate, but this wasn’t the case with Binance. As it turns out, behind the scenes, Binance was doing something illegal with customer money.
In June 2023, the U. S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance, and specifically CZ.
The charge was for commingling. Resolution / Payoff The SEC found that “accounts in the name of Binance entities, beneficially owned by Zhao, sent billions of dollars of customer assets to U. S.
-based bank accounts in the name of Merit Peak. ” Essentially, CZ was mixing customer’s money with company money, and secretly moving them around, without any safeguards. “The transfer of record ownership and the safeguarding of securities and funds related thereto, are necessary for the protection of investors” “Sending Binance customer funds to Merit Peak placed those funds at risk, including of loss or theft, and was done without notice to customers.
” A similar occurrence happened at FTX, which landed the founder, SBF, in prison for 25 years. But this is just the beginning. Chapter 3: From Bad to Worse Setup Binance wasn’t allowed to operate in the US, and in response, had to block US users, and launch a new dedicated platform: Binance.
US. At least, that’s what they did in the public eye. As it turns out, Binance was pretending to follow these regulations, but behind the scenes, were doing the opposite.
Tension CZ knew a huge proportion of their revenue was coming in from the US, and in particular, a small group of customers. The Department of Justice found that “Instead of complying with U. S.
law, in 2019, Binance took steps to maintain a substantial number of U. S. customers.
” (source) A small group of high value customers brought in huge amounts of money for Binance. So instead of following the law, they secretly kept them on the platform. “Binance executives, including Zhao, made a plan to contact VIP customers and help the VIP register a new account for an offshore entity and transfer holdings to that account.
” But that’s not all. Employees directly called these VIPs, and told them to provide information that implied they were outside the US. There was a lot of shady stuff behind the scenes, yet that’s not even all of it!
CZ was also accused of having no money laundering practices. Not because of negligence, but knowingly. Why?
Because money laundering means more money. Way more money. “Changpeng Zhao knowingly operated a financial platform without basic anti-money laundering safeguards, the company caused illegal transactions between U.
S. users and users in sanctioned jurisdictions” One North Korean hacking group stole $5. 4 million virtual currency, and then laundered that on Binance, allowing them to hide the trail.
This is just one example. It’s estimated that Binance processed at least $2. 3 billion from hacks, investment frauds, and drug sales.
$770 million in 2019 alone. There is no doubt that part of Binance’s lucrative growth was from illegal activity. It was an attractive place to go for this, especially when Binance would protect you if you had enough money.
What happened to CZ? Where did all of this fraud lead him? Resolution / Payoff In late 2023, CZ and Binance plead guilty to these many charges.
Binance agreed to pay a $4. 3 billion fine, and CZ paid a personal fine of $50 million. Not only that, he was barred from any involvement with the business.
CZ told the court “I deeply regret my failure, and I am sorry. ” His time as Binance’s CEO was over. CZ then tweeted saying: “I made mistakes, and I must take responsibility.
This is best for our community, for Binance, and for myself. … I can’t see myself being a CEO driving a startup again. ” Like Sam Bankman Fried, CZ went to jail.
His net worth had also fallen, to about $33 billion. Still an astounding amount, but about a third of what he once had. For many, this was the end of the story.
But, surprisingly, things still continue from here, and it starts with his prison sentence. Chapter 4: Surprising New Developments Setup Sam Bankman Fried went to jail for 25 years. But CZ’s sentence was much, much shorter.
(Play clip: 0:15 to 0:22). An unusually short sentence which likely has to do with the fact that while Binance had several shady practices, there was no major collapse or loss of customer funds like FTX. In fact, some would argue that CZ shouldn’t have been sent to jail at all and that the US was just trying to make an example of him after FTX.
There is some merit to this sentiment given that CZ was the first financial executive to ever be sent to prison for money laundering violations in the US. Traditionally, the punishment typically stops at just fines and resignations. But you could also argue that this is simply due to no financial executive before CZ being held accountable.
Anyway, jail didn’t seem to slow things down for him. Prison guards approached CZ in prison, asking him “which coins should they buy? ” Inmates also began asking CZ for advice.
He told them “I don't have access to any information. I don't even know what the market looks like. ” Though this wasn’t the case for long.
After his four month sentence, CZ was promptly released from prison, and immediately, his life picked up where it left off. He was invited to give a talk in Dubai, where he was welcomed by adoring fans. (Play from 0:18 to 0:29).
So what about his personal wealth? Although not the CEO of Binance, he still holds most of the shares. How much is he worth now?
To answer that, we need to look at Binance. Tension Many thought Binance was down and out. That their reputation was ruined after all the fraud.
They undoubtedly took a hit, especially with the $4. 3 billion fine. But as it turns out, Binance is still doing better than ever.
Binance is still on top of the Crypto world, and is still the largest exchange. In June 2024, they had 44% of the market share, and a trading volume of $424 billion, per month. He may have paid $50 million, but as of November 2024, he’s worth over $60 billion.
A massive rebound. Things are great right now for Binance, but not perfect. Resolution / Payoff Since the judges ruling and CZ’s sentence, Binance has experienced a 22.
7% month-on-month decrease. In March their market share was over 50%, and their trading volume was over double. Simultaneously, one of their competitors: Bybit, has been slowly gaining ground.
Growing in Binance’s long shadow. It’s not clear how the market will change, but Binance may not be the largest Crypto exchange for too much longer. To add fuel to the fire, FTX has sued Binance for $1.
8 billion, calling a share deal they made in 2021 “fraudulent”. Ironic, yet not surprising considering the history of both companies. Grand Payoff Binance is one of the many examples of prioritizing growth over everything.
Regulations, customer safety, and much more were sacrificed for investor gain. Yet all of it feels a little anti-climatic. The US District Judge who provided Zhao his sentence said “No person — regardless of wealth — is immune from prosecution or above the laws of the United States.
” Yet, it doesn’t seem like his words line up with his ruling. $50 million is a lot of money, but to a multi deca billionaire it’s a slap on the wrist. With his sentence only being four months, it’s not clear whether CZ’s punishment fits the crime.
Especially when Sam Bankman-Fried was sentenced to 25 years. What do you think? Did CZ get what he deserved?
Comment that down below. CTA If you’re interested in deeper dives, interviews with insiders, and exclusive tech analysis, you can sign up to our free weekly newsletter, link is below. But until then, I’m Hari, and I’ll see you guys on the next one.
