Welcome back, everyone. I am Cass PNC.
I'm joined as usual, by my partner in crime, Mr. Bennett
Tomlin. How are you today?
I'm. Doing well.
How are you, Cass? I'm doing good.
Today, Bennett and I are talking about CZ, who was the CEO and
founder of Binance, the most liquid and volumous
cryptocurrency exchange in the world.
I think still. Right, yes, by far.
Which is kind of crazy because because of the things we're
going to talk about today, but the difference between what
happened to him, he just got tried and sentenced for what he
did at finance. So we're going to talk about
that, and we're going to talk about the difference between
that and what happened to SPF and what SPF was guilty of and
why he ended up getting a much longer sentence.
SPF, of course, being Sam Bankman Freed, who was the CEO
and founder of another cryptocurrency exchange, FX, and
a trading firm called Alameda Research.
But yeah, sorry for the long winded explanation there, but
Bennett, do you want to just kind of describe what happened
to CZ, what he is guilty of? CZ was actually not tried.
He pleaded guilty to violations of the Bank Secrecy Act and was
sentenced to four months in prison.
And for some people, this has been a jarring comparison to the
recent trial, conviction and sentencing of Sam Beckman Freed.
For those who missed our many previous episodes on the topic,
Sam Bankman Freed was convicted of seven felony accounts,
including wire fraud, conspiracy to commit a variety of different
types of fraud, securities fraud, commodities fraud.
Oh, just about any kind of fraud he could get his hands on.
And Sam Bankman Freed was sentenced to 25 years in prison,
which is 75 times more than four months.
And some people don't feel that there's a 75 fold difference in
what these two people were doing.
That's kind of what we're looking at today.
What led to this drastic difference between these two
criminals and the time they'll spend repaying their debt to
society? I think it's worth pointing out
as far as we know I don't there's no confirmation of this
but as far as we know especially considering that Sambank and
Freed is still putting in appeals and trying to alter his
sentence and yeah he's desperately trying to get out of
of of what has happened. Now I think it's worth pointing
out that anything is possible we're seeing that with like
Harvey Weinstein right now unfortunately you never know
when an an appeal as unlikely as it may seem is going to work.
So we don't know what will happen with Sam Bank and creed.
What we what we can say for sure is that he was sentenced to 25
years. He had already done over a year
in prison by the time he was sentenced to that.
So that time is counted or time in jail.
Sorry. So that time is counted.
We also believe that he will be eligible for a program that will
get him likely if he behaves himself in federal prison out
after serving roughly 50% of his sentence though something like
11-12 years. Which is still a long time,
especially if you spend a lot of it at MDC because you're
desperately appealing. Sure.
I yeah that I mean that's yes, that's wild.
But I will say that it is a very long time.
I do understand why people would prefer if there was kind of an
exemption considering how many people he hurt because SPF
through his malfeasance did did hurt a lot of people.
Can you just let's let's talk about that?
Because that that that's really at the heart of why he was given
such a strong sentence along with his lack of remorse and
cooperation. So let's discuss all of that.
Yeah, And I think this this gets at the bulk of why their
sentences are so different. And we'll get into the
cooperation and general ability to handle a crisis, which also
contributed. But like Sam Bankman, Freed
embezzled somewhere in the range from 8 to $11 billion in assets
from FTX, leaving it massively insolvent and therefore meaning
that like, the entire thing just collapsed.
As far as we know, Binance never had an 8 to $11 billion hole in
its books, and none of the criminal charges brought against
Chang pens out are about having a hole in the books.
They're primarily about Binance's deliberate choice to
not maintain a compliance program in order to increase
their volume and things like that.
Having said that, I do want to note that we've discussed on
here before that finance accounting has problems.
That suggests at times they may have been double counting
certain assets and other things that suggest there may have been
some problems, but they were never on the scale of 8 to 11
billion and they never caused the exchange to shut down
withdrawals and collapse into bankruptcy.
And that's the real kicker here, right?
Is that regardless of whatever else CZ was doing, finance did
not collapse into a messy bankruptcy, hurting like, tons
and tons of people. And now I want to get into
something because because yes, that's all of that is, as far as
we know that's accurate. I mean, we have no, we have no.
Like you said, we don't know what the books actually look
like for Binance. Very few people would, but.
I think even the CFO, if you remember one episode when I was
out visiting you. Yeah, exactly.
And and this is kind of what I, I, I was hoping we could bring
up is this idea that we've been talking about Binance and the
problems and the solution like the solutions and all of this
going on for over a year now. This is not new that that CZ and
Binance were under investigation and in trouble A A big
difference here though is they apparently, as far as we can
tell, immediately cooperated with the government and opened
up the cryptocurrency exchange to the feds.
For lack of a better way of phrasing this.
And you know, I like you don't have to take my word for it.
Look at the agreements that have been made.
Yes, I think you're exactly right.
And like the other thing that just keeps running through my
head, like in the lead up to the sentencing and after the
sentencing has been comparisons to Arthur Hayes.
For those who don't remember, Arthur Hayes was the founder and
once the chief executive officer of Bit Max, an offshore
cryptocurrency exchange that allowed people to make massive
leverage bets on Bitcoin. Eventually Arthur Hayes became
worried, convinced that there was potential criminal charges
waiting in the wings for him. Hired a top flight law firm to
start dealing with some of those consequences, placed himself in
a non extradition location while they were working on whatever
they could work, and then eventually surrendered at a time
basically of his choosing to. The feds pleaded to I think 1
count of violating the Bank Secrecy Act and his sentencing
was, I think just house arrest for Arthur Hayes after that
negotiation. And Chang Penzo apparently saw
Arthur Hayes do that and was like, oh that's the trick.
That's what I'm going to have to do.
And so back in 2022, ish 2021 ish, when the regulatory and law
enforcement pressure on finance started stepping up, finance did
a few things. They started hiring like Tigran
Gambrayan from the IRS and a bunch of other people to lead
like their new unit that was going to be cooperating with
authorities around the world to make finance useful for them.
And Chang Penzo himself hired Kendall Day, the former head of
the Department of Justice's money laundering at an asset
recovery service to start negotiating on his behalf in
Washington. So finance starts cooperating as
fully as possible. Chang Penzo hires arguably the
best possible lawyer for this type of thing to start
negotiating on his BF and places himself in a non extradition
country until the deal's been negotiated and he's ready to
surrender. And this is just such a strong
contrast to Sam Bankman. Freed, when he realized there
was a problem, went running in. Not to the feds, not to lawyers,
not to accountants, but to Chang Pen Zhao, and then collapsed
into bankruptcy. And then just started loudly and
publicly protesting his innocence, which CZ has been
very, very careful in regards to his public relations ever since
then. At CZ was always less obnoxious
than Sam Bankman, Freed and this.
Continued like even through their literal sentencing.
Sam Bankman freed his letter to the judge before his sentencing.
Half of it is Macklemore lyrics. Part of it he describes how much
he's going to miss having sex. Like the entire thing is a mess
in which he never, like, actually expresses regret or
sorrow. And Chang pans out.
When he was in court for his sentencing was like, I'm sorry
for what I did. In the harms I've caused.
I take responsibility. I was the CEO, and this is all
my responsibility. And so even at the end, even
when, like the hands were basically dealt, the chips were
going to land where they were, there was still such a striking
difference between how these two adult cryptocurrency executives
faced the music as it was coming.
And part of that might come to the difference in the music.
Chang Pen Zhao knew he was very unlikely to get over 18 months,
as we've talked about before. But like it, it's still striking
to see that repeated to the very bitter end.
I think it really tells you a lot about both of these
individuals as well. Where you have Sam Bankman,
Freed, who seems to always think he knows what's best, regardless
of the experts around him, And then CZ, who is doing everything
to shut his mouth and hire people who he knows understand
everything better than he does and he's just there to listen.
And like the other take away is following Chang Penzo's pattern,
following Arthur Hayes pattern. Here you can get away with a lot
if you cooperate and play it well, right?
Like Binance was the what largest or second largest
counterparty for Hydra. They were transacting with some
of these sanctioned Iranian entities and things like that.
Like there was a lot of seriously questionable
transactions, like problematic bookkeeping, wash trading, and
arguably market manipulation, conflicted transactions between
trading firms and exchange. There's a lot to still dig into
in the Binance story, but like fundamentally because he saw
that there was the power of the state coming towards him, most
of that never came out I. Think it's worth pointing out
that they also paid. Tell me if I'm wrong here, but I
believe finance paid the largest fine in in history, $4 billion,
if not the largest one of the largest settlements in history,
$4 billion, which I guess they're able to pay without
touching customer deposits and all of that stuff because they
also have court appointed people within the inside of Binance,
essentially ensuring that everything is as they claim it
is. Well, and you talked about that
$4 billion fine. And like we've complained about
the HSBC case on this podcast before, and this was double the
monetary amount of that case, right.
And so if you're living in a world, which unfortunately we
are, where cases like the HSBC case are how the system works,
regrettably, then Binance finance's case stops seeming
like the whiff it sometimes feels like, because they
literally got a fine double the size of HSBC, this massive bank,
right? I definitely understand the
disappointment in the concept of of finding any of these entities
at all, right? I I I totally understand that
sentiment. I get it.
If you're going to have these laws in place about, you know,
helping terrorists get funded where I would expect the US
government would come down incredibly hard on a singular
individual who is guilty of any of this stuff but didn't come
down as hard on the entity of finance and the individual of
CZI get the frustration with that.
I do want to point out, you and I were discussing this, that
that those funds don't go directly to the SEC.
Those those funds don't go directly to the Department of
Justice. Those funds are given to the the
general fund. Those are general fund funds.
They go back to the Treasury. Like ultimately it looks great
for them when they go ask for their budget next year in front
of Congress. But it is not strictly speaking
like oh, they're getting a payoff, They're getting this big
fine, it's all going straight to them.
That's why they're accepting it. That is not how it works.
I want to make sure people are are cognizant of that.
I still get the frustration, however.
We don't have to like it. We don't have to agree with it.
In fact, I think probably it's not just no coiners.
I'm sure there's a lot of coiners out there who really
didn't appreciate the way that CZ did business either.
You don't have to like the guy to understand why the US
government is doing what it's doing and making the deals that
seem like sweetheart deals. I do get the idea that if you're
able to get within the business structure of the largest
cryptocurrency exchange in the world, how that can pay off in
other ways, I guess. And I think what you just
mentioned there with the monitor is like a significant motivator
for government investigators. We've talked before about like
how the Alphabet seizure led to like eventually all the Hydra
convictions, Roswell, Khan and Dutch's cases.
All this stuff came because the government got access to this
relatively small compared to something like finance site that
helped them piece together a bunch of the other actors in the
ecosystem. And the number of actors in the
ecosystem who have 0 interaction with Binance is very, very
small. And so having this additional
level of insight was definitely, in my opinion, a motivator for
government investigators. I totally agree with that.
I don't think either of us necessarily approves of the way
these things go or I. We're certainly not cheerleaders
for CZ or Binance. I mean, I think it's incredible
that B&B hasn't gotten them in huge trouble from a long.
Time the SEC case is still going on.
Well, we'll see what happens with that.
You know the SEC, they always go for the throat.
Gosh, we'll have to do an episode about that.
Just seeing I it's pretty, it's been pretty interesting to see
how people are getting really upset that the SEC are sending
out a bunch of Wells notices now.
You should like and subscribe otherwise the price of cast coin
is just going to keep going down.
I don't know. I don't know what else to tell
you guys. Merritt Pete Can't keep buying
cast coin at these prices. You got to stop them.