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Cryptogambling / Binance negotiating $4B deal with DOJ to resolve criminal probe

Binance negotiating $4B deal with DOJ to resolve criminal probe

Publish Date: 21/11/2023
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Binance CEO Changpeng “CZ” Zhao and the Department of Justice are reportedly in talks for a $4 billion deal to resolve a criminal investigation into the crypto exchange.

A Bloomberg report suggests that Zhao, who currently resides in Dubai, might return to the U.S. to address charges related to alleged money laundering, bank fraud and sanctions violations, potentially ending the prolonged investigation.

The proposed agreement might involve a deferred prosecution arrangement, wherein the DOJ would file a criminal complaint against Binance. The U.S. government might abstain from prosecution if Binance meets specific conditions, typically enforced with penalties for violations.

The DOJ might announce the deal next week, but the negotiations are ongoing, and the exact charges remain unclear. On the news, Binance’s BNB token surged by 8.5 percent to reach $266.42.

“A settlement with a monitoring provision in place could be a compromise that protects investors and allows Binance the option to evolve into a more institutional and compliant future direction,” said Matt Walsh, founding partner at crypto venture firm Castle Island Ventures.

A $4 billion payment by the company to settle the probe would mark one of the largest penalties in a criminal crypto case.

The deal’s goal is to enable Binance to keep running instead of shutting down, which could have adverse effects on markets and cryptocurrency holders.

Striking a balance

The U.S. government is trying to strike a balance between taking action against Binance and avoiding disruptions in the sector after notable collapses last year, like FTX’s bankruptcy, a former rival of Binance.

Binance has been under scrutiny by the DOJ since at least 2018. In December 2020, federal prosecutors requested internal records from Binance regarding its anti-money laundering checks and communications involving Zhao.

The current investigation is one among several legal and regulatory challenges confronting the world’s largest crypto exchange. In June, the Securities and Exchange Commission (SEC) filed a lawsuit against Binance and Zhao, accusing them of evading U.S. federal securities laws through a complex scheme.

The SEC made 13 allegations, claiming that Binance had inflated its trading volumes, redirected customer funds, failed to prevent U.S. customers from using its platform and misled investors regarding its market surveillance controls.

As a result of the lawsuit, investors withdrew approximately $780 million from the crypto exchange. Binance had to cut around one-third of its U.S. workforce, and trading activity reduced significantly.

Binance has challenged the lawsuits, mentioning its active cooperation with regulators’ investigations and expressing disappointment with the enforcement actions. The company criticized the SEC filing, describing it as an attempt by the agency to regulate using enforcement and litigation rather than a more considerate and nuanced approach suitable for this dynamic and complex technology.

Binance’s crypto outflows after SEC lawsuit

According to data firm Nansen, Binance experienced net outflows of $778.6 million in crypto tokens within 24 hours of the SEC lawsuit filing. Meanwhile, Binance.US recorded net outflows of $13 million.

The SEC lawsuit against Binance came roughly eight months after the collapse of FTX. FTX was accused of mixing customers’ funds and investing them in high-risk ventures without their knowledge.

Just before FTX collapsed, Zhao revealed that Binance would sell off its FTT tokens. Binance’s announcement led to a rush of customers trying to withdraw funds from FTX. However, the company lacked enough funds to pay investors looking to withdraw their assets.

Then FTX CEO Sam Bankman-Fried was eventually found guilty of extensive fraud against FTX customers.

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