Who benefits from Changpeng Zhao’s pardon?

Hello and welcome to Regulator.

When it comes to the news cycle, only the actual destruction of the White House could have overshadowed the slate of dubious pardons that President Donald Trump issued last week, including former Rep. George Santos, the compulsive fabulist who had been expelled from Congress for making false statements and went to prison for numerous counts of fraud, and Changpeng Zhao, billionaire and former CEO of the crypto exchange Binance. Unfortunately, the White House did get destroyed, and CZ’s pardon seems to have been put on the news backburner as Washington stares at the literal pile of rubble that was the East Wing.

But at its core, these two disparate events are part of the same dynamic under the second Trump administration: Trump uses tech industry money to bulldoze US institutions (in this case, literally), and the tech industry gains some advantage elsewhere.

I’ve written before about how tech companies are using donations to the National State Ballroom Fund as a way to soften Trump, going over the heads of the MAGA regulators, and appealing straight to the boss. Sure, they might have believed that all Trump would do was knock down some walls in the East Wing to build his ballroom, maybe bulldoze a famous Rose Garden or whatever. But anyone familiar with Trump’s biography should have known that he’s not averse to willfully destroying historical landmarks and artistic masterpieces to construct his own buildings — even if he’s promised not to do that. (See: the origin story of Trump Tower on Fifth Avenue in the 1980s.)

But on Sunday — days after the East Wing’s debris was being mysteriously hauled away in dump trucks — a list of the 37 companies financing the ballroom came out, and quite a large percentage of them are tech companies. Meta, Apple, Amazon, Google’s parent company Alphabet, Microsoft, Palantir, and HP are on the list, as are telecoms like T-Mobile. These companies are at the mercy of the Trump administration, which seems to operate more on caprice than on long-term thinking. A tariff loophole could be open or shut based on Trump’s mood that day. A merger could be blocked if Trump believes a viral post claiming that a company has a woke / DEI / CCP agenda.

On the other hand, a sizable number of donors come from the crypto world: Ripple, Coinbase, and Tether are among the corporate donors, and private donors include Tyler and Cameron Winklevoss, and Paxos cofounder Charles Cascarilla. Crypto has a very different incentive than traditional Big Tech: whereas the old tech companies are desperately trying to avoid Trump’s regulatory punishment, crypto is only now facing the first waves of regulatory scrutiny from the government and has a rare opportunity to write the laws that would govern them. Or, at least, the biggest whales do.

That brings us to Zhao. During the Biden administration, the former Binance CEO pled guilty to one count of violating financial sanctions and money laundering laws, for which he paid a $50 million fine and spent four months in prison — an extremely light sentence, considering the scale of the financial crime he and Binance committed, but the result of a deal he struck with the feds, who noted Zhao’s “cooperation” throughout the investigation. By the time that Trump returned to office, Zhao had been out of prison for months, he still retained majority control of Binance, and he was still a billionaire. He and Binance were already building a warm relationship with the Trump sons and their crypto ventures, which would have helped with any number of regulatory issues down the road. So why go out of the way to hire a Trumpworld lobbyist to secure a pardon that he didn’t really need?

I posed this question to Liz Lopatto, who covered the Binance trial last year, and she brought up a dimension to this pardon that I hadn’t considered: Zhao’s criminal record. “There are a lot of things that felons can’t do, especially financially,” she pointed out. Zhao had to step down as Binance CEO after the ruling and was barred from doing any business with Binance for the next three years. “I am curious about whether a pardon removes those conditions, because I imagine this guy, being who he is, wants to run his company. Y’know, he founded it,” she said.

We go into the potential motivations for CZ’s pardon ploy below, but first, a week of Verge coverage of AI legal nightmares, shutdown hell, and other political tech shenanigans:

“I imagine this guy, being who he is, wants to run his company”

Tina Nguyen: Just to illustrate the scale of how unusual this pardon is — was CZ’s conviction on par for other high-profile crypto crimes?

Elizabeth Lopatto: He’s such an important part of the crypto ecosystem and foundational to it. The allegations in the indictments were pretty damning and also very funny. Like, if you go back and read the indictment, they are hysterically funny. Some of the stuff that’s being quoted from their messaging apps is unbelievable. It looked like an open-and-shut case, based on how much happened just in plain text and based on how much they had in plain text. And also, they had two CEOs of the American arm [of Binance] testifying against him! Remarkable stuff.

Then he gets this relatively short sentence, and the judge, in reading out his sentence, talks a little bit about his extraordinary cooperation with the government. The prosecutors talk about it. So it’s kind of like, damn, what did you give up? I imagine that there’s national security intel in the data the government got a hold of and found useful. That all seems normal to me. It is not uncommon for someone who has an indictment hanging over them, if they have enough money, to start negotiating. And we saw that with the people in FTX who ended up cooperating with the government against Sam Bankman-Fried. I think Caroline Ellison also got jail time, but only at least a couple months, which is roughly what CZ got, too.

Of course, the government wants to incentivize people to cooperate — one, because they may have other fish to fry, and whatever stuff that might be helpful to them is going to be helpful to them. And two, because it saves them a ton of resources versus having to run an actual trial. CZ did actually serve his time, which, like, good on him, man.

The part that is remarkable to me is the pardon, because we know that the Trumps are really involved in crypto. I believe that they were in a partnership with a trading platform that had been administered by Binance.

That’s a relationship I want to discuss more: the Trump family has a lot of leverage over major crypto interests, because Trump’s either pardoned or dropped charges against some of their biggest whales. Justin Sun and his relationship with Eric Trump comes to mind. But when we were talking earlier, you said that CZ probably has way more leverage over the Trump family’s crypto ventures than I would have initially expected. Could you elaborate more on that?

Binance is a major force in this space. Just look at how much trading happens on Binance, and separately, their partnership with the Trump crypto venture, where Binance is effectively administrating their platform. But CZ is someone who is very respected in the crypto space, someone who is relatively powerful, reputationally. And so, having someone like that in the Trump sons’ corner benefits them — not just in terms of any future deals they may be making, but also in terms of giving them credibility in crypto, because CZ is generally presented as being a true believer. One of the things that I think is underappreciated by the public at large is that a lot of the crypto world really did not like Sam Bankman-Fried. He was viewed as a Wall Street guy who was just coming in to make money and not a real crypto guy. That’s one of the reasons they were also fast to turn on him, in contrast to Zhao, who’s viewed as a pillar of the crypto community, if you will. Nobody questions his devotion to crypto’s cause. So that in and of itself is interesting.

It makes him an interesting ally for the Trump family as they get further into crypto. That’s a fairly powerful person to have in your corner. On top of that, Binance hired this lobbyist, Charles McDowell, who’s a friend of Donald Trump Jr. So I think that probably also helps.

What exactly does getting a pardon mean for CZ’s ability to move around the world and make money? He’s served his time. He seemed like he was pretty cooperative, he was already out in the world, but now it’s like he never committed a crime.

I can’t speak to what all of this means in other countries, in part because I have American tunnel vision. But in America, we’re pretty punitive about felons. There are a lot of things that felons can’t do, especially financially. CZ had to step down as CEO of Binance, and if you go look at the plea agreement, you’ll see that there are some conditions he agreed to. And I am curious about whether a pardon removes those conditions, because I imagine this guy, being who he is, wants to run his company. Y’know, he founded it. It’s been a tremendous source of money and power for him. I’m sure he wants it back.

If the pardon does remove some of the penalties that the US places against people with felonies, that is important for CZ, because some of those things are really important for having a job in finance. As we see crypto getting closer to touching actual banks and trying to mainstream itself, that pardon puts CZ in a position that he needs to be in to begin handling money.

The thing that’s worth keeping in mind is that when it comes to finance, American law applies everywhere the US dollar goes. So as long as finance is doing anything with US dollars, American law matters. And, of course, a lot of what finance is doing involves dollars because dollars is one of the preferred currencies. I think removing whatever impediments might be there for him to interact with the American financial system makes it much easier for him to interact with Binance.

If we’re talking about tunnel vision, I’ve always noted that Washington people express a really limited understanding of what a bribe is. Like, there are so many ways that one could benefit financially that’s well beyond “me just giving money to someone else.”

I mean, I think that the reason DC thinks in that narrow way, is because otherwise they have to admit that there are an awful lot of people, and not just Republicans, who arguably are bought and paid for by a number of industries. If you take a broader view of what you think about bribing is — if you think of it as influence, if you think about it as “getting certain laws done” — that really opens up a lot of things to be bribes.

I’ll give you a specific example. Many years ago, when I worked at Bloomberg, I talked with billionaire Carl Icahn about why he kept trying to move his companies to North Dakota. And the reason was that he had essentially bought a set of laws there that were particularly friendly to activist investors. He talked to me about it. He was very proud of those laws. And he did it in an entirely above-board way. I’m not accusing him of having done anything improper here: he spoke with lobbyists, spoke with assorted people in North Dakota, and eventually this slate of laws got passed. But that is the level of influence that you can have on politics if you have enough money. And it’s a level of influence that isn’t available to the average voter.

Maybe DC people don’t think of that as being bribery, per se, because if you think of it that way, then just about everybody who’s employed as a lobbyist is effectively engaged in bribing people. Again, I don’t want to accuse anybody of having done anything that is necessarily illegal, but we as a society have decided that this is fine. Trump is exploring the outer limits of that, maybe to the point at which one thinks that certain kinds of laws would come into play.

We could change that if we wanted to. But I think it is spectacularly difficult to change. Because the people who would want to change it are the people who don’t have any money and can’t buy their laws.

This man has created a postmodern horror masterpiece:

Happy Halloween, and see you next week.