Zhao’s crypto exchange will also admit wrongdoing and agree to pay $4.3 billion in fines
3 min
The chief executive of Binance, the largest global cryptocurrency exchange, plans to step down and plead guilty to violating criminal U.S. anti-money-laundering requirements, in a deal that may preserve the company’s ability to continue operating, according to people familiar with the matter.
Changpeng Zhao is scheduled to appear in Seattle federal court Tuesday afternoon and enter his plea, according to court records unsealed Tuesday. Prosecutors also unsealed a document charging Binance, which Zhao owns, with anti-money-laundering and sanctions crimes. Binance will also plead guilty and agree to pay fines totaling $4.3 billion, which includes amounts to settle civil allegations made by regulators, the people said.
Zhao has agreed to pay a criminal fine of $50 million, although that amount may be reduced based on separate civil penalties he has agreed to pay, court records show.
The deal would end long-running investigations of Binance. Zhao founded the firm in 2017 and turned it into the most important hub of the global crypto market. The criminal probe, in particular, has shadowed the company even as its market share initially grew after the collapse last year of FTX, one of its main offshore competitors.
Executives have recently fled Binance, and the exchange has laid off a chunk of its employees this year as the company struggled to come to terms with the U.S. probes.
The deal would allow Zhao to retain his majority ownership of Binance, although he won’t be able to have an executive role at the company. He is eligible to return to working at the company three years after a court-imposed compliance monitor is appointed, court records show. He would face sentencing at a later date.
The outcome resembles an earlier case that prosecutors brought against the executives of BitMEX, an exchange for trading crypto derivatives that was based in the Seychelles. Its former CEO, Arthur Hayes, pleaded guilty to violating anti-money-laundering law and was later sentenced to two years probation, avoiding a possible prison term of six to 12 months.
Striking a deal between the Justice Department and Binance had been elusive for months, the people said. Zhao recently hired a new lead attorney, William A. Burck of Quinn Emanuel Urquhart & Sullivan, to represent him before the Justice Department. Gibson Dunn & Crutcher has represented Binance.
The Justice Department declined to comment.
The deal to be announced on Tuesday doesn’t include a settlement with the Securities and Exchange Commission, which sued Binance and Zhao in June and alleged it violated U.S. investor-protection laws, the people said. Major crypto exchanges such as Binance have decided to litigate with the SEC, believing they can show that cryptocurrencies don’t qualify as the kinds of investments overseen by the SEC.
The Justice Department’s investigation looked at Binance’s program to detect and prevent money laundering and whether it allowed individuals in sanctioned countries, such as Iran and Russia, to trade with Americans on the exchange, the Journal previously reported.
A separate agreement would resolve a civil lawsuit filed against Binance and Zhao earlier this year by the Commodity Futures Trading Commission, one of the U.S. regulators that has tried to police the freewheeling global market, the people said. The $4.3 billion that Binance would pay includes amounts to address the CFTC’s claims and those levelled by agencies of the Treasury Department.
The CFTC claimed that Binance for years didn’t have a program to prevent and detect terrorist financing and money laundering. It also said Binance gave Americans access to derivatives such as futures or swaps that can only be traded in the U.S. if they are offered on regulated platforms. Binance never registered with U.S. regulators, making its risky leveraged products off-limits to American traders, the CFTC said.
A CFTC spokesman declined to comment.
Zhao resides in the United Arab Emirates and had curtailed his travel this year. The United Arab Emirates doesn’t have a mutual extradition treaty with the U.S., although last year the countries signed a treaty that enhances law-enforcement evidence sharing.
The U.A.E. remained welcoming to crypto even as countries such as China and the U.S. have cracked down on the unregulated industry. Zhao’s status was a sticking point in negotiations between the government and Binance for months, according to people familiar with the talks.
—Caitlin Ostroff contributed to this article.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
What a quarter-million dollars gets you in the western capital.
Alexandre de Betak and his wife are focusing on their most personal project yet.
Report by the San Francisco Fed shows small increase in premiums for properties further away from the sites of recent fires
3 min
Wildfires in California have grown more frequent and more catastrophic in recent years, and that’s beginning to reflect in home values, according to a report by the San Francisco Fed released Monday.
The effect on home values has grown over time, and does not appear to be offset by access to insurance. However, “being farther from past fires is associated with a boost in home value of about 2% for homes of average value,” the report said.
In the decade between 2010 and 2020, wildfires lashed 715,000 acres per year on average in California, 81% more than the 1990s. At the same time, the fires destroyed more than 10 times as many structures, with over 4,000 per year damaged by fire in the 2010s, compared with 355 in the 1990s, according to data from the United States Department of Agriculture cited by the report.
That was due in part to a number of particularly large and destructive fires in 2017 and 2018, such as the Camp and Tubbs fires, as well the number of homes built in areas vulnerable to wildfires, per the USDA account.
The Camp fire in 2018 was the most damaging in California by a wide margin, destroying over 18,000 structures, though it wasn’t even in the top 20 of the state’s largest fires by acreage. The Mendocino Complex fire earlier that same year was the largest ever at the time, in terms of area, but has since been eclipsed by even larger fires in 2020 and 2021.
As the threat of wildfires becomes more prevalent, the downward effect on home values has increased. The study compared how wildfires impacted home values before and after 2017, and found that in the latter period studied—from 2018 and 2021—homes farther from a recent wildfire earned a premium of roughly $15,000 to $20,000 over similar homes, about $10,000 more than prior to 2017.
The effect was especially pronounced in the mountainous areas around Los Angeles and the Sierra Nevada mountains, since they were closer to where wildfires burned, per the report.
The study also checked whether insurance was enough to offset the hit to values, but found its effect negligible. That was true for both public and private insurance options, even though private options provide broader coverage than the state’s FAIR Plan, which acts as an insurer of last resort and provides coverage for the structure only, not its contents or other types of damages covered by typical homeowners insurance.
“While having insurance can help mitigate some of the costs associated with fire episodes, our results suggest that insurance does little to improve the adverse effects on property values,” the report said.
While wildfires affect homes across the spectrum of values, many luxury homes in California tend to be located in areas particularly vulnerable to the threat of fire.
“From my experience, the high-end homes tend to be up in the hills,” said Ari Weintrub, a real estate agent with Sotheby’s in Los Angeles. “It’s up and removed from down below.”
That puts them in exposed, vegetated areas where brush or forest fires are a hazard, he said.
While the effect of wildfire risk on home values is minimal for now, it could grow over time, the report warns. “This pattern may become stronger in years to come if residential construction continues to expand into areas with higher fire risk and if trends in wildfire severity continue.”
