Explained: Who is Changpeng Zhao, Binance billionaire sued by US regulator?

Binance- the world's biggest crypto exchange and its Chief Executive Officer (CEO) and founder Changpeng Zhao were sued by the US Commodity Futures Trading Commission (CFTC) on Monday (March 27) for operating an allegedly ''illegal" exchange. According to a statement, the CFTC sued Binance, Zhao and its former top compliance executive with "willful evasion" of American law while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.

The lawsuit comes amid a broader and increasingly high-profile crackdown on crypto companies. On Monday, the CFTC said in its complaint that from at least July 2019 till now, Binance "offered and executed commodity derivatives transactions on behalf of US persons" in violation of American laws.

Changpeng Zhao,46, meanwhile, has called the regulator's complaint "unexpected and disappointing."

Who is Changpeng Zhao?

Changpeng Zhao was born in China in 1977 and moved to Canada in 1989 when he was 12 years old. Zhao moved to Canada just after China's Tiananmen Square crackdown on pro-democracy protesters. As a child, Zhao expressed an interest in computer programming courses and later went on to study computer science at McGill University in Montreal. After university, Zhao interned for a subcontractor at the Tokyo Stock Exchange, according to a report by Forbes. He then worked for Bloomberg Tradebook in New York for several years, where he developed software to match trade orders.

In 2005, he moved to China and tried his hand at several different tech startups before he got involved in crypto.

2017: Zhao founded Binance

In 2017, Changpeng Zhao founded Binance- which became the world's biggest crypto exchange within six months. According to research firm CryptoCompare, Binance at present accounts for about 60% of global crypto trading volumes. In October last year, a report by the news agency Reuters said that Zhao has kept a tight grip on Binance from its earliest days as a powerful leader committed to secrecy and focused on market domination.

Even in 2017 when the crypto exchange was founded, Zhao had towering ambitions. "We want to take over the entire market!" he told staff in a company chat group. And this year, the 46-year-old felt that a major goal was almost within his grasp: a seat at the top table of finance.

"The idea that a five-year-old start-up could mature and operate at the same level as a financial institution that has been around for 200 years was once impossible to fathom," he wrote in January in a review of the previous year.

The Reuters report added that Zhao installed a tight circle of associates, many of whom had worked or studied in China into top jobs. Though Binance has hired widely from the traditional financial and regulatory worlds in recent years, Zhao's tight control over his company continues.

Zhao closely guards details about company's finances

Changpeng Zhao has closely guarded details about Binance's finances. A Reuters analysis of Binance's corporate filings done last year showed that the core of the business- the Binance.com exchange had processed trades worth more than $22 trillion last year. This was mostly hidden from public view.

The extent of Zhao's wealth is also unclear.

The US regulator's complaint

The CFTC's complaint on Monday detailed Binance's efforts to retain American customers even after the company, in partnership with a purportedly independent American firm, launched a US exchange in 2019 to serve American customers in compliance with US regulations.

This American firm- BAM Trading- was in fact controlled by Zhao and managed by Binance as a de-facto subsidiary, the news agency previously reported. The CFTC said that under Zhao's orders, Binance from at least July 2019 till now told employees and customers to swerve compliance checks. It also alleged that the crypto exchange grew and concealed the US user base and failed to establish the money-laundering checks required of financial institutions.

Speaking to CNBC on Tuesday, CFTC Chairman Rostin Behnam said, "This seemed to be a pretty clear case of evasion and something that we needed to step in aggressively with and do it as quickly as possible because this was an ongoing fraud."

The US regulator has also accused Binance's former Chief Compliance Officer Samuel Lim of "aiding and abetting" the crypto exchange's violations.

Zhao responds to allegations

In a blog post on Monday, Changpeng Zhao said that the CFTC's complaint appeared to contain an incomplete recitation of facts

"Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint. While we will only be able to give full responses in due time, we will address a few key points below," Zhao said in the post.

"Binance is committed to transparency and cooperation with regulators and law enforcement — in the US and globally," Zhao said, adding, the crypto exchange intends to continue to respect and collaborate with the US and other regulators around the world.

A spokesperson for Binance said the company would continue to collaborate with regulators, Reuters reported. The spokesperson added that Binance made significant investments to ensure it does not have US users on its platform.

(With inputs from agencies)

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