Crypto Critics' Corner

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Episode 150 – CZ v. SBF

CZ vs SBF – Crypto Critics' Corner

Bennett and Cas discuss the sentencing of Changpeng Zhao and what it means for the cryptocurrency industry, along with comparing it to the outcome for cryptocurrency exchange fraud Sam Bankman-Fried. This video was recorded on May 6th, 2024.

Cas Piancey and Bennett Tomlin discuss the sentencing of Changpeng Zhao and what it means for the industry.

This podcast was recorded on May 6th, 2024.

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English Transcript:

00:00:05:11 - 00:00:06:11
Cas Piancey
Welcome back everyone.

00:00:06:11 - 00:00:11:17
Cas Piancey
I am Cas Piancey. I'm joined, as usual, by my partner in crime, Mr. Bennet Tomlin. How are you today?

00:00:11:17 - 00:00:13:01
Bennett Tomlin
I'm doing well. How are you, Cas?

00:00:13:01 - 00:00:13:15
Cas Piancey
doing good.

00:00:13:15 - 00:00:15:05
Cas Piancey
Today, Bennet and I are talking about,

00:00:15:05 - 00:00:27:12
Cas Piancey
CZ who was the CEO and founder of Binance, the most liquid and voluminous cryptocurrency exchange in the world, I think. Still. Right.

00:00:27:12 - 00:00:28:08
Bennett Tomlin
Yes. By far.

00:00:28:08 - 00:00:31:17
Cas Piancey
which is kind of crazy because because of the things we're going to talk about today.

00:00:31:17 - 00:00:44:04
Cas Piancey
but the difference between what happened to him, he just got, tried and sentenced, for what he did at Binance.

00:00:44:06 - 00:00:59:23
Cas Piancey
so we're going to talk about that, and we're going to talk about the difference between that and what happened to SBF and what SBF was guilty of and why he ended up getting a much longer sentence. SBF, of course, being Sam Bankman-Fried, who,

00:00:59:23 - 00:01:08:11
Cas Piancey
was the CEO and founder of another cryptocurrency exchange, FTX. and a trading firm called Alameda Research.

00:01:08:13 - 00:01:14:06
Cas Piancey
but yeah, sorry for the long winded explanation there, but, Ben, do you want to just kind of describe

00:01:14:06 - 00:01:16:19
Cas Piancey
what happened to CZ? What he is guilty of?

00:01:16:19 - 00:01:22:20
Bennett Tomlin
CZ was actually not tried. He pleaded guilty to violations of the Bank Secrecy Act

00:01:22:20 - 00:01:38:21
Bennett Tomlin
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 Bankman-Fried for those who missed out many previous episodes on the topic.

00:01:38:21 - 00:02:05:03
Bennett Tomlin
Sam Bankman-Fried was convicted of seven felony counts, 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-Fried 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.

00:02:05:03 - 00:02:11:19
Bennett Tomlin
that's kind of what we're looking at today. What led to this drastic difference between these two criminals

00:02:11:19 - 00:02:15:01
Bennett Tomlin
and the time they'll spend repaying their debt to society.

00:02:15:01 - 00:02:25:02
Cas Piancey
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, Sam Bankman-Fried is still putting in appeals and trying to,

00:02:25:02 - 00:02:26:23
Cas Piancey
alter his sentence and,

00:02:26:23 - 00:02:30:15
Cas Piancey
yeah, he's desperately trying to get out of of of what has happened now.

00:02:30:15 - 00:02:34:00
Cas Piancey
I think, it's worth pointing out that anything is possible.

00:02:34:00 - 00:02:37:04
Cas Piancey
we're seeing that with, like, Harvey Weinstein right now,

00:02:37:04 - 00:02:38:08
Cas Piancey
unfortunately.

00:02:38:08 - 00:02:43:13
Cas Piancey
you never know when an appeal, as unlikely as it may seem, is going to work.

00:02:43:13 - 00:02:56:23
Cas Piancey
so we don't know what will happen with Sam Bankman-Fried. What we 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.

00:02:56:23 - 00:02:58:17
Cas Piancey
So that time is counted,

00:02:58:17 - 00:03:02:01
Cas Piancey
or time in jail. Sorry. so that time is counted.

00:03:02:01 - 00:03:10:13
Cas Piancey
we also believe that he will be eligible for a program that will get him, likely if he behaves himself in federal prison,

00:03:10:13 - 00:03:13:16
Cas Piancey
out after serving roughly 50%,

00:03:13:16 - 00:03:17:07
Cas Piancey
of his sentence. So, something like 11, 12 years.

00:03:17:07 - 00:03:23:13
Bennett Tomlin
Which is still a long time. Especially if you spend a lot of it at MDC. Because you're desperately appealing.

00:03:23:16 - 00:03:31:11
Cas Piancey
Sure. Yeah. I mean, that's. Yes. that's wild, but I will say that, it is a very long time.

00:03:31:11 - 00:03:34:03
Cas Piancey
I do understand why people.

00:03:34:03 - 00:03:49:02
Cas Piancey
would prefer if there was kind of an exemption, considering how many people he hurt because SBF, 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

00:03:49:02 - 00:03:51:16
Cas Piancey
a strong sentence along with,

00:03:51:16 - 00:03:54:02
Cas Piancey
his lack of remorse and cooperation.

00:03:54:02 - 00:03:55:06
Cas Piancey
So let's discuss all of

00:03:55:06 - 00:04:22:11
Bennett Tomlin
Yeah, and I think this this gets it the bulk of why their sentences are so different. And we'll get into the cooperation in general, ability to handle crisis, which also contributed. But like Sam Bankman-Fried 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.

00:04:22:11 - 00:04:36:13
Bennett Tomlin
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 Changpeng Zhao are about having a hole in the books they're primarily about. Binance is

00:04:36:13 - 00:04:43:18
Bennett Tomlin
deliberate choice to not maintain a compliance program in order to increase their volume and things like that.

00:04:43:18 - 00:04:46:04
Bennett Tomlin
Having said that, I do want to note

00:04:46:04 - 00:04:56:11
Bennett Tomlin
that we've discussed and here before that Binance aCZounting has problems that suggest at times they may have been double counting certain assets

00:04:56:11 - 00:05:00:16
Bennett Tomlin
and other things that suggest there may have been some problems,

00:05:00:16 - 00:05:06:08
Bennett Tomlin
but they were never on the scale of 8 to 11 billion, and they never caused the exchange to shut

00:05:06:08 - 00:05:19:10
Bennett Tomlin
down withdrawals and collapse into bankruptcy. And that's the real kicker here, is that regardless of whatever else CZ was doing, Binance did not collapse into a messy bankruptcy, hurting like tons and tons of people.

00:05:19:10 - 00:05:31:19
Cas Piancey
And now I want to get into something. Because. Because. Yes. That's. All of that is. As far as we know, that's aCZurate. 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,

00:05:33:00 - 00:05:37:14
Bennett Tomlin
Not even the CFO. If you remember one episode from when I was out visiting you.

00:05:37:14 - 00:05:43:11
Cas Piancey
And and this is kind of what I, I was hoping we could bring up is this idea that,

00:05:43:11 - 00:05:51:16
Cas Piancey
we've been talking about Binance and the problems and, the solution, like the solutions and all of this going on

00:05:51:16 - 00:05:53:03
Cas Piancey
for over a year now.

00:05:53:03 - 00:05:59:17
Cas Piancey
this is not new that that CZ and Binance were under investigation and

00:05:59:17 - 00:06:00:12
Cas Piancey
in trouble.

00:06:00:12 - 00:06:05:09
Cas Piancey
a big difference here though is they apparently, as far as we can tell,

00:06:05:09 - 00:06:07:07
Cas Piancey
immediately cooperated with the government.

00:06:07:07 - 00:06:12:01
Cas Piancey
and opened up the cryptocurrency exchange to

00:06:12:01 - 00:06:12:23
Cas Piancey
the feds,

00:06:12:23 - 00:06:20:08
Cas Piancey
for lack of a better way of phrasing this, and, you know, I like you don't have to take my word for it.

00:06:20:10 - 00:06:21:23
Cas Piancey
Look at the agreements that

00:06:22:16 - 00:06:46:07
Bennett Tomlin
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 BitMEX, an offshore cryptocurrency exchange that allowed people to make massive leveraged bets on bitcoin.

00:06:46:07 - 00:06:49:18
Bennett Tomlin
Eventually, Arthur Hayes became

00:06:49:18 - 00:06:58:08
Bennett Tomlin
worried, convinced that there was potential criminal charges waiting in the wings for him, hired a top flight law firm to start

00:06:58:08 - 00:07:23:06
Bennett Tomlin
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 one count of violating the Bank Secrecy Act and his sentencing was, I think, just house arrest for Arthur Hayes after that negotiation.

00:07:23:08 - 00:07:40:05
Bennett Tomlin
And Changpeng Zhao apparently saw Arthur Hayes do that and was like, oh, that's the trick. That's what I'm gonna have to do. And so back in 2022 ish, 2021 ish, when the regulatory and law enforcement pressure on Binance started stepping up, Binance did a few things. They started hiring like

00:07:40:05 - 00:07:48:00
Bennett Tomlin
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

00:07:48:00 - 00:07:49:17
Bennett Tomlin
to make Binance useful for them.

00:07:49:22 - 00:08:00:21
Bennett Tomlin
And Changpeng Zhao himself hired, Kendall Day, the former head of the Department of Justice's Money Laundering and Asset Recovery Service, to start negotiating on his behalf in Washington.

00:08:00:21 - 00:08:16:13
Bennett Tomlin
So Binance starts cooperating as fully as possible. Changpeng Zhao hires arguably the best possible lawyer for this type of thing to start negotiating on his behalf, and places himself in a non extradition country until the deal's been negotiated and he's ready to surrender.

00:08:16:15 - 00:08:30:14
Bennett Tomlin
And this is just such a strong contrast to Sam Bankman-Fried, who, when he realized there was a problem, went running in not to the feds, not to lawyers, not to accountants but to Changpeng Zhao,

00:08:30:14 - 00:08:32:19
Bennett Tomlin
and then collapsed into bankruptcy.

00:08:32:19 - 00:08:34:11
Cas Piancey
And then just started

00:08:34:11 - 00:08:38:23
Cas Piancey
loudly and publicly protesting his innocence.

00:08:38:23 - 00:08:44:05
Cas Piancey
Which CZ has been very, very careful in regards to his public relations

00:08:44:05 - 00:08:51:19
Cas Piancey
ever since then, CZ was always less obnoxious than Sam Bankman-Fried,

00:08:51:19 - 00:08:54:23
Bennett Tomlin
And this continued, like, even through their literal sentencing,

00:08:54:23 - 00:08:58:11
Bennett Tomlin
Sam Bankman-Fried, his letter to the judge before his sentencing.

00:08:58:11 - 00:09:16:11
Bennett Tomlin
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 pens that 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.

00:09:16:11 - 00:09:36:16
Bennett Tomlin
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.

00:09:36:16 - 00:09:41:13
Bennett Tomlin
Changpeng Zhao knew he was very unlikely to get over 18 months, as we've talked about before,

00:09:41:13 - 00:09:47:01
Bennett Tomlin
but like it's still striking to see that repeated to the very bitter end.

00:09:47:01 - 00:09:52:04
Cas Piancey
Well, I think it really tells you a lot about both of these individuals as well, where you have

00:09:52:04 - 00:10:09:07
Cas Piancey
Sam Bankman-Fried, 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.

00:10:09:07 - 00:10:15:11
Bennett Tomlin
And like the other takeaway is following Changpeng Zhao’s pattern following Arthur Hayes pattern. Here

00:10:15:11 - 00:10:37:12
Bennett Tomlin
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,

00:10:37:12 - 00:10:42:13
Bennett Tomlin
wash trading and arguably market manipulation, conflicted transactions between trading firms.

00:10:42:13 - 00:10:48:08
Bennett Tomlin
In exchange, there is a lot to still dig into in the Binance story. But like fundamentally,

00:10:48:08 - 00:10:53:14
Bennett Tomlin
Because he saw that there was the power of the state coming towards him.

00:10:53:14 - 00:10:54:11
Bennett Tomlin
Most of that

00:10:54:11 - 00:10:55:09
Bennett Tomlin
never came up.

00:10:55:09 - 00:11:02:13
Cas Piancey
I think it's worth pointing out that they also paid. I would tell me if I'm wrong here, but I believe Binance paid the largest fine in in history.

00:11:02:13 - 00:11:03:14
Cas Piancey
$4 billion,

00:11:03:14 - 00:11:15:03
Cas Piancey
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 that stuff, because they also have,

00:11:15:03 - 00:11:22:04
Cas Piancey
court appointed people within the inside of Binance, essentially ensuring that everything is as they claim it is.

00:11:22:04 - 00:11:29:18
Bennett Tomlin
Well, and you talked about that $4 billion fine. And like, we've complained about the HSBC case on this podcast before.

00:11:29:18 - 00:11:34:07
Bennett Tomlin
and this was double the monetary amount of that case. Right.

00:11:34:07 - 00:11:55:12
Bennett Tomlin
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 Binance 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?.

00:11:55:12 - 00:12:12:12
Cas Piancey
I definitely understand the disappointment in the concept of, of fining 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

00:12:12:12 - 00:12:17:06
Cas Piancey
we're I would expect the US government would come down incredibly hard on a singular event.

00:12:17:08 - 00:12:19:19
Cas Piancey
Individual who is guilty of any of this stuff,

00:12:19:19 - 00:12:25:17
Cas Piancey
but didn't come down as hard on the entity of Binance and the individual of CZ.

00:12:25:17 - 00:12:27:08
Cas Piancey
I get the frustration with that.

00:12:27:08 - 00:12:35:21
Cas Piancey
I do want to point out you and I were discussing this, that those funds don't go directly to the SEC. Those those funds don't go directly to the department of Justice.

00:12:35:21 - 00:12:43:08
Cas Piancey
those funds are given to the the general fund. Those are general fund funds. They go back to the Treasury like

00:12:43:08 - 00:12:48:23
Cas Piancey
Ultimately, it looks great for them when they go ask for their budget next year in front of Congress.

00:12:48:23 - 00:12:54:04
Cas Piancey
but it is not, strictly speaking, like, oh, they're getting a pay off, they're getting this big fine.

00:12:54:04 - 00:13:02:23
Cas Piancey
It's all going straight to them. That's why they're aCZepting it. That is not how it works. I want to make sure people are cognizant of that. I still get the frustration, however,

00:13:02:23 - 00:13:05:19
Cas Piancey
we don't have to like it. We don't have to agree with it.

00:13:05:19 - 00:13:08:04
Cas Piancey
in fact, I think probably it's not just no pointers.

00:13:08:04 - 00:13:12:13
Cas Piancey
I'm sure there's a lot of pointers out there who really didn't appreciate the way that CZ did business either.

00:13:12:13 - 00:13:21:13
Cas Piancey
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.

00:13:21:13 - 00:13:30:19
Cas Piancey
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,

00:13:30:19 - 00:13:31:13
Cas Piancey
I guess.

00:13:31:13 - 00:13:34:21
Bennett Tomlin
And I think what you just mentioned there with the monitor is like,

00:13:34:21 - 00:14:05:02
Bennett Tomlin
a significant motivator for government investigators. We've talked before about, like, how the alphabay seizure led to, like, eventually, all the Hydra convictions. Basel can and duchies, cases. All that stuff came because the government got access to this relatively small compared to something like Binance 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 zero interaction with Binance is very, very small.

00:14:05:05 - 00:14:05:21
Bennett Tomlin
And so

00:14:05:21 - 00:14:08:12
Bennett Tomlin
having this additional level of insight

00:14:08:12 - 00:14:13:18
Bennett Tomlin
was definitely, in my opinion, a motivator for government investigators.

00:14:13:18 - 00:14:14:21
Cas Piancey
I totally agree with that.

00:14:14:21 - 00:14:23:19
Cas Piancey
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.

00:14:23:19 - 00:14:26:06
Cas Piancey
I mean, I think it's incredible that BNB hasn't

00:14:26:06 - 00:14:29:13
Cas Piancey
gotten them in huge trouble from a long

00:14:29:13 - 00:14:32:11
Bennett Tomlin
The SEC. The SEC case is still going on.

00:14:32:11 - 00:14:33:06
Cas Piancey
Well,

00:14:33:06 - 00:14:34:18
Cas Piancey
we'll see what happens with that.

00:14:34:18 - 00:14:37:08
Bennett Tomlin
You know the SEC. They always go for the throat.

00:14:37:08 - 00:14:48:03
Cas Piancey
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,

00:14:48:03 - 00:14:49:22
Cas Piancey
You should like and subscribe.

00:14:49:22 - 00:14:55:17
Cas Piancey
otherwise, the price of CasCoin is just going to keep going down. I don't know, I don't know what else to tell you guys.

00:14:55:17 - 00:15:01:13
Bennett Tomlin
Merit Peak can't keep buying CasCoin at these prices. You got to stop them.

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