CZ, Binance Face New Legal Challenge as Former CEO Moves to Halfway House

It looks like former Binance CEO, Changpeng Zhao (CZ), has checked out of the big house and is now holed up in a smaller, cosier house — specifically, a halfway house. According to prison records circulating on X / Twitter, CZ’s new lodgings are a transitional arrangement before his full release, which is scheduled for September 29.

While his stint in prison may be coming to an end, CZ’s legal troubles continue. A group of three crypto investors have launched a class-action lawsuit against CZ and Binance. The investors allege that thieves stole their crypto and essentially used Binance to launder the assets, rendering them untraceable and unrecoverable. They say this was only possible because Binance, under CZ’s leadership, failed to implement proper money laundering protections.

Related: Judge Dismisses SEC Claims Against Binance, Cites Lack of Clarity in Crypto Securities Classification

CZ’s Legal Woes Continue with Class Action Suit

This latest lawsuit against CZ and Binance was filed in the US District Court for the Western District of Seattle, Washington on August 16. The plaintiffs allege that after their assets were stolen, the thieves sent them to Binance with the intention of removing “the connection between the ledger and their digital assets”, effectively rendering the assets untraceable.

The plaintiffs also argued that by failing to prevent money laundering Binance essentially undermined one of the key potential benefits of blockchain technology, traceability. The suit claims that without organisations like Binance to launder assets, blockchain tech makes theft inherently high risk as all transactions are recorded on the ledger forever:

The lawsuit claims that in providing this money laundering platform Binance violated the Racketeer Influenced Corrupt Organisations (RICO) Act.

Lawsuit Bad for Crypto If It Progresses to Trial

Posting on X / Twitter, Bill Hughes, a lawyer at Consensys and formerly the US Department of Justice, said that if this suit made it to discovery it could be bad for crypto as a whole—as Binance would be incentivised to denigrate the power of blockchain analytics and the technology’s inherent traceability:

Oh the things that Binance would be incentivized to say about tracing and recovery – kinda a tough position to be in, honestly, if you care anything about the industry.

Bill Hughes, Lawyer at Consensys

Hughes added that he thinks it’s unlikely to get that far, suggesting CZ will probably pay to settle the case before too much harm is done:

It probably won’t [make it to discovery] – CZ gonna open up that wallet and make it go away at some point.

Bill Hughes, Lawyer at Consensys

He said if it did go to trial he’s doubtful the plaintiffs could reach the burden of proof required to prove their assets would’ve been recoverable if not for them being laundered through Binance, saying:

Whether they can satisfy their burden on this key allegation is dubious, if you ask me.

Bill Hughes, Lawyer at Consensys

CZ’s Long March to Freedom

There had been rumours swirling that CZ had been fully released from prison, but according to the inmate records doing the rounds on X / Twitter, CZ has in fact just been transferred from FCI Lompoc II, a low-security federal prison located in California, to RRM Long Beach, a halfway house.

Related: Binance Founder CZ Sentenced to Four Months in Prison

CZ pleaded guilty in November 2023 to breaches of US anti-money laundering laws and was sentenced to a four-month prison term in April. The former Binance CEO began his stint in the slammer in June and is scheduled for full release at the end of September. As part of his plea deal, CZ also agreed to step down as the CEO of Binance.