By Tom Wilson and Angus Berwick
LONDON (Reuters) -Binance founder Changpeng Zhao could never be accused of thinking small.
Even back in 2017, the year he launched the business in China, he had towering ambitions: “We want to take over the entire market!” he told staff in a company chat group.
The 46-year-old CEO didn’t waver in his belief as he built up his crypto exchange. And this year Zhao felt 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,” the billionaire wrote in January in a review of the previous year.
“But we are nearly there today.”
That dream is looking more distant this week after Zhao and Binance were sued by the U.S. Commodity Futures Trading Commission (CFTC) on Monday for operating an allegedly “illegal” exchange.
The two narratives clash.
In the review of 2022, Binance hailed its progress in complying with regulations across the world. The exchange had strived through the year to strengthen client checks, it said, developing crypto’s “best security and compliance team.”
According to U.S. regulators, though, Binance ran a “sham” compliance programme.
Under Zhao’s orders, Binance from at least July 2019 to the present told employees and customers to swerve compliance checks, the CFTC said. Binance also grew and concealed its U.S. user base and failed to establish the money-laundering checks required of financial institutions, it alleged, citing a number of practices first reported by Reuters in a series of investigations into the exchange last year.
“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,” CFTC Chairman Rostin Behnam told CNBC on Tuesday.
In response to the U.S. allegations, Zhao wrote in a blog on Monday: “The complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged.”
Binance is also under investigation by the U.S. Department of Justice for alleged criminal sanctions violations and money laundering, Reuters reported in December, with some prosecutors believing they have sufficient evidence to charge Zhao and other top executives. Binance said at the time it did not have any insight into the inner workings of the DOJ.
Binance and Zhao did not respond to requests for comment for this article. A Binance spokesperson said on Monday the company would continue to “collaborate” with regulators.
ZHAO ‘ANSWERS TO NO ONE’
Zhao was born in China before moving to Canada in 1989 when he was 12, two months after China’s Tiananmen Square crackdown on pro-democracy protesters, he wrote in a blog last year.
The tycoon, known by his staff and online followers by his initials CZ, has crisscrossed the globe in his quest for success, working in Tokyo and New York before moving to Shanghai, where he embraced crypto and founded Binance in 2017.
Its expansion was dramatic.
Binance became the world’s biggest crypto exchange within six months, and now accounts for about 60% of global crypto trading volumes, according to research firm CryptoCompare.
Zhao has kept a tight grip on Binance from its earliest days, Reuters reported in October, as a powerful leader committed to secrecy and focused on market domination.
“Zhao answers to no one but himself,” the CFTC said in its complaint.
The CEO installed an tight circle of associates, many of whom had worked or studied in China, into top jobs, the Reuters report in October showed. Co-founder Yi He now runs Binance’s $7.5 billion venture capital arm, as well as other key departments. Zhao and He were in a romantic relationship for several years, and have a son together who was born in the United States.
While Binance has hired widely from the traditional financial and regulatory worlds in recent years, Zhao’s tight control over his company has continued.
He regularly used the Signal messaging app, with its auto-delete function enabled, to communicate with Binance subordinates and other contacts on topics from finance to accounts, according to the CFTC.
Zhao has also closely guarded information about Binance’s finances.
A Reuters analysis last year of Binance’s corporate filings showed that the core of the business – the giant Binance.com exchange that has processed trades worth over $22 trillion last year – is mostly hidden from public view.
The extent of Zhao’s personal wealth is also unclear. In September, he tweeted that a Forbes estimate of his fortune at $17.4 billion was a “subjective opinion.”
(Reporting by Tom Wilson and Angus Berwick in London; Additional reporting by Doina Chiacu in Washington; Editing by Pravin Char)
