Despite new class action lawsuit, Zhao Changpeng may be released from prison on time

Jessy, Golden Finance

On August 16, three former Binance users filed a class action lawsuit against Binance and Zhao Changpeng in the Seattle Federal Court, accusing Binance of laundering money for criminals through its platform, which harmed the interests of consumers.

At this time, it is only more than a month away from the end of Zhao Changpeng's sentence, and many people are worried that this lawsuit will affect his normal release from prison. Lawyer Xiao Sa, senior partner of Beijing Dacheng Law Firm, said in an interview with Golden Finance that this lawsuit is a civil lawsuit, and there is a direct legal connection between it and the criminal lawsuit he served before, which will not affect his sentence and the length of his sentence.

It has been nearly a year since Zhao Changpeng went to the United States to participate in the lawsuit. In November last year, Binance reached a settlement with the United States and paid a fine of 4.3 billion US dollars. Zhao Changpeng also admitted to violating the US anti-money laundering law and other charges, resigned as Binance CEO, and paid a fine of $175 million. In May this year, Zhao Changpeng began serving a sentence of 4 months.

In the minds of many people, Binance's US regulation should have come to an end. Binance paid "protection fees" to the United States and cleared the regulatory obstacles. However, this class action lawsuit has sounded the alarm for both Binance and the blockchain industry itself: the game with regulation is not a one-time thing. In the future, we must always do things within the framework of regulation, and the cost of legality and compliance will account for the bulk of the project.

Zhao Changpeng may be released from prison as scheduled

According to media reports, Zhao Changpeng is expected to be released on September 29. But this week he was transferred from a minimum security prison in Southern California to RRM Long Beach, a residential project that prepares prisoners who are about to be released from prison to re-enter society.

Because of the overdue release of Zhao Changpeng from prison, Binance's platform coin BNB has risen sharply recently. Although Zhao Changpeng was banned from participating in Binance's specific work for three years, the return of the industry's "big brother" is undoubtedly a confidence booster for the industry.

Attorney Xiao Sa said that according to the currently public information, the three plaintiffs filed a civil lawsuit against Zhao Changpeng in the Seattle Western District Court. The plaintiffs believed that their stolen cryptocurrencies could not be recovered because Binance failed to effectively prevent criminals from money laundering, so they wanted Binance to compensate for the losses. At present, there is no direct legal connection between this civil lawsuit and the criminal case in which Zhao Changpeng was previously imprisoned, and it will not affect his sentence and the length of his sentence.

Specific to this case, lawyer Xiao Sa said that the key to the outcome of this case lies in whether the plaintiff has sufficient and legally valid evidence to prove that Binance implemented relevant measures under the instruction of Zhao Changpeng, and there is a legal causal relationship between these measures and the inability to recover the stolen cryptocurrency.

At the same time, the application of the law is also very critical. The plaintiff believes that Zhao Changpeng's behavior violated the "Racketeer and Corrupt Organization Group Crime Act" (abbreviated as "RICO") enacted in 1970 by the United States, and the two sides will inevitably confront each other in terms of the application of the law. This is just the beginning of this lawsuit, and it is impossible to judge the direction of the case. We need to let the bullet fly for a while.

“US$4.3 billion” is not a protection fee, but an opening of Pandora’s box

Combing the class action lawsuits that Binance and Zhao Changpeng have faced in the United States in the past one or two years:

In April 2024, it was revealed that at least 10 similar class action lawsuits were filed in the Southern District Court of New York, accusing Binance and other crypto companies of selling unregistered securities products to American investors.

In 2021, Cox filed a class action lawsuit for the first time in 2021, accusing Binance of artificially limiting HEX’s ranking on CoinMarketCap, Binance’s cryptocurrency price tracking platform, thereby manipulating HEX’s currency price. In February 2023, the district court judge dismissed the lawsuit for the first time. In August 2024, the U.S. Court of Appeals partially overturned the dismissal of the class action lawsuit filed against Binance.US. That is to say, it has restarted the HEX manipulation case against Binance.US.

In January 2024, Seiden Law LLP, representing three American families who were victims of the Hamas terrorist attack on Israel on October 7 last year, filed a lawsuit in the Southern District Court of New York against Binance and its former CEO Zhao Changpeng, the Iranian and Syrian governments, accusing them of providing financial and other material support for the terrorist activities of the Palestinian militant organization Hamas.

In April 2023, the law firm Moskowitz, led by class action veteran lawyer Adam Moskowitz, filed a lawsuit against Binance, CEO Zhao Changpeng, and celebrities who promoted the exchange in Florida (including NBA Miami Heat star Jimmy Butler) on behalf of "hundreds of thousands of victims." The lawsuit allegedly sold and promoted unregistered securities.

Through the above three class action lawsuits, it can be found that the sale of unregistered securities products is a frequent cause of action for Binance in the past and in the future. This practice violates the Securities Act.

Xiao Sa said that no matter whether it is a company in the crypto asset industry or how well a company complies with regulations, it is impossible for any company to completely avoid being sued by regulators or consumers. Of course, the better the compliance work is done, the less losses caused by lawsuits from regulators and consumers.

In the future, Binance will not use strict means to ban US users, because US users are one of Binance's largest markets, and doing business with US users means that Binance will be regulated by US laws and US regulators for a long time. Only by doing a good job in long-term compliance construction can various legal risks be avoided as much as possible.

And compliance is not only in the United States, more and more countries are strengthening supervision of the crypto industry.

Like Binance, not only has it been mentioned in class action lawsuits similar to securities law violations in the United States, but in April this year, the Ontario Superior Court in Canada filed a class action lawsuit against the cryptocurrency exchange Binance, accusing it of violating securities laws by selling cryptocurrency derivatives to retail investors without registration. When certifying the class action lawsuit, the court pointed out that crypto contracts are considered securities or derivatives under current regulations, and their marketing belongs to distribution. And this is not the first time Binance has faced similar lawsuits in Canada.

Previously, Binance paid 4.3 billion in settlement fees, and the general view in the industry was that "Binance paid protection fees to the United States." Lawyer Xiao Sa said that rather than saying that Binance's settlement is "paying protection fees", it is better to say that it has opened Pandora's box. Subsequent related civil lawsuits may continue to be filed, and it is not that everything will be fine after reaching a settlement with regulators.

It can be seen that for Binance, Zhao Changpeng's release from prison does not mean that all obstacles have been cleared in terms of supervision. In the future, whether it is Binance or other exchanges, compliance will be the main line of development.

Where will Binance go after Zhao Changpeng leaves?

If the settlement with US regulators at a cost of 4.3 billion is a watershed in the development of Binance. Then where will Binance go after this watershed, after Zhao Changpeng leaves?

The speed of Binance listing coins this year has indeed slowed down. Compared with other exchanges, it is relatively small. He Yi said in an interview that from last year to this year, Binance has only launched more than 30 coins, while other exchanges have launched hundreds.

From the speed of listing coins, we can see that Binance is cautious in listing coins. As the largest exchange in the industry, it will be watched by more eyes and should bear more responsibilities.

He Yi said that there are several main lines for Binance's future development. The first is technology application and innovative investment, so that technology can be better applied to the current industry. Binance will continue to invest in more companies and hope that there will be more innovation in this industry.

The second is platform expansion and user participation. Binance expands the platform for more users to enter the industry. In the past two years, Binance has added content business, such as Plaza, with the aim of allowing users who are not interested in the currency circle to participate and gradually understand the currency circle and investment.

Third, stablecoins and Web3 wallets. Binance hopes to use Web3 wallets as a long-tail business to cover current exchange users.

Fourth, compliance issues and global expansion. The focus of Binance's business in the future is to solve compliance issues around the world, communicate with regulators in various countries, build trust, and conduct anti-money laundering.