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May 1, 2024

CT seeks to block crypto exchange Binance from operating in state; founder sentenced to prison

PHOTO | HBJ FILE Connecticut Banking Commissoner Jorge Perez.
By David Krechevsky

Binance founder Changpeng Zhao is going to prison and the state Department of Banking wants to make sure his money-laundering cryptocurrency exchange stops operating in Connecticut.

The billionaire founder of Bam Trading Services Inc., which does business as Binance.US, pleaded guilty to money laundering charges in November. On Tuesday, U.S. District Judge Richard Jones in Seattle sentenced Zhao to four months in prison, a much less severe penalty than the three-year term sought by federal prosecutors.

The sentencing concludes the federal probe of Binance, the world’s largest crypto exchange, and is part of a settlement deal with prosecutors that included Zhao stepping down as CEO and paying a $50 million fine. Binance was also ordered to pay $4.3 billion in penalties.

Last week, in the wake of Zhao’s guilty plea, Commissioner Jorge L. Perez of the state Department of Banking issued an order suspending Binance’s license to operate in Connecticut and ordered the exchange to cease and desist “from engaging in unsafe and unsound practices.”

The 14-page order, dated April 24, also included a notice of intent to revoke the exchange’s money transmission license and to impose a civil penalty “not to exceed $100,000 per violation.”

The order states it was the result of an investigation by the department’s Consumer Credit Division, which accused the exchange of failing to maintain “the permissible investments required of money transmission licenses.” It also cites the “multiple federal plea agreements and admissions of wrongdoing,” and that Binance and Zhao failed to file a notice of the plea deals with the Nationwide Multiple Listing Service (NMLS) within one business day. 

The order adds that Zhao’s felony convictions “while acting as a control person” for Binance, as well his admitting to “willfully violating” the federal Bank Secrecy Act, are both “sufficient grounds for the commissioner to deny an application for a money transmission license.”

According to the order, it would take effect no later than seven days after it was received, and requires Binance officials to “secure all records, files and documents relating to its money transmission business in Connecticut.”

The order adds that the department will grant Binance and/or Zhao a hearing if it receives a written request for one within 14 days after the order is received. If it is requested, the hearing would be held in person on June 19 at 10 a.m. in the Banking Department’s offices in Hartford.

“If respondent does not request a hearing within the time prescribed or fails to appear at any such hearing, the allegations herein will be deemed admitted,” the order states, adding that the commissioner will then issue an order revoking Binance’s license to operate in the state.

Matt Smith, a spokesman for the state Banking Department, said Wednesday that Binance has acknowledged receipt of the order, but he was not sure whether the exchange or Zhao had requested a hearing, nothing that they have another week to do so.

He added the department would have no comment on Zhoa's sentence.

The federal investigation, which was conducted jointly by the U.S. Department of Justice, Treasury Department, and Commodity Futures Trading Commission (CFTC), accused Binance of violating the Bank Secrecy Act by not having an anti-money laundering program and of processing transactions that violated federal law.

Binance is also the target of a lawsuit filed by the CFTC and the U.S. Securities and Exchange Commission that accuses it of operating an illegal, unregistered exchange and improperly handling customer assets.

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