Some of the latest legal updates in the crypto space include Binance founder Changpeng "CZ" Zhao's sentencing for money laundering charges has been postponed to Apr. 30, with potential outcome speculation ranging from 12–18 months in a minimum-security facility to no jail time. Meanwhile, SEC Chair Gary Gensler opened the floor for lawmakers to ask further questions about a cybersecurity breach that happened after a "SIM swap" attack on the SEC's X account. Furthermore, Crypto Finance, a Deutsche Börse subsidiary, received regulatory approval from Germany's BaFin for crypto operations.
Binance Founder CZ's Sentencing Delayed
The sentencing for Binance founder Changpeng "CZ" Zhao, initially set for Feb. 23, has been postponed to Apr. 30, according to a notice filed in a Seattle Federal Court. Zhao, who pleaded guilty to charges of money laundering, could face up to 18 months in prison based on sentencing guidelines. However, a filing by the prosecution on Nov. 24 last year suggested that he might receive a much harsher penalty, potentially up to the statutory maximum of ten years.
Former U.S. Securities and Exchange Commission (SEC) official John Reed Stark speculated that Zhao is likely to serve a 12–18 month sentence in a minimum-security facility. Despite this lenient possibility, Zhao's legal team is still expected to argue for no jail time, proposing alternatives like home detention and probation.
Currently free on a $175 million bail, Zhao lives in the United States waiting for his sentencing. His bail conditions were tightened when a U.S. Federal court denied his request to travel to Dubai on Dec. 29, where his family lives. The court pointed towards flight risk concerns for its decision, especially after Zhao offered all of his equity in Binance.US, valued at approximately $4.5 billion, as security.
Zhao's legal troubles stem from his Nov. 21 guilty plea for failing to implement an effective anti-money laundering program at Binance. This admission was part of a $4.3 billion settlement with the U.S. government, which accused the exchange of facilitating illegal fund transfers. As part of the settlement, Zhao resigned as CEO of the exchange.
SEC Chair Responds to Lawmakers Over X Account Breach
As most people in the crypto community know by now, the SEC became the target of a cybersecurity breach when an unauthorized tweet was sent from its official X account on Jan. 9, falsely claiming the approval of spot Bitcoin exchange-traded funds (ETFs) for listing and trading on U.S. exchanges. SEC Chair Gary Gensler, in a letter to Representatives Patrick McHenry, French Hill, Bill Huizenga, and Ann Wagner dated Feb. 6, revealed that the incident was the result of a "SIM swap" attack, allowing the hacker to gain access to the SEC's social media account.
Gensler detailed that the attacker managed to make two posts and like two tweets before the commission was able to regain control of the account. The unauthorized access was terminated by X by 5:30 pm on the same day. The breach is under investigation by law enforcement, which is looking into how the hacker persuaded the carrier to change the SIM associated with the account and how they knew the phone number linked to it.
The SEC is working closely with its Office of Inspector General, the Federal Bureau of Investigation, and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency, along with Justice Department officials, to investigate the breach. Gensler emphasized the SEC's commitment to its cybersecurity obligations and opened the floor for lawmakers to ask further questions.
Naturally, the misleading tweet momentarily stirred the crypto market, as it coincided with anticipation around the SEC's decision on spot BTC ETFs. Interestingly, on Jan. 10, the day after the incident, the SEC did approve 11 spot Bitcoin exchange-traded products for U.S. exchanges. It was later reported by X’s safety team that the SEC did not enable two-factor authentication for its account, which contributed to the vulnerability leading to the security breach, a detail the commission confirmed in a later statement on Jan. 22.
Deutsche Börse Subsidiary Gains Regulatory Approval for Crypto Operations in Germany
On a lighter note, Crypto Finance, a subsidiary of Deutsche Börse specializing in institutional-grade digital asset investment products, custody, and trading, has recently been granted four licenses by the German Federal Financial Supervisory Authority (BaFin). This development comes as Deutsche Börse, a leading global marketplace organizer and owner of the Frankfurt Exchange, prepares to debut a digital exchange tailored for institutional clients, named DBDX, expected to launch within the year.
Already regulated by the Swiss Financial Market Supervisory Authority (FINMA), Crypto Finance's new German licenses are a massive step towards expanding its operational capabilities. These permits allow the company to offer regulated digital asset trading, settlement, and custody services to institutions in Germany, thereby enhancing its position in the European market.
The acquisition of Crypto Finance by Deutsche Börse in 2021 was a strategic move to boost its foothold in the digital asset space. Crypto Finance has been instrumental in pioneering crypto asset investment products on the SIX exchange in Switzerland, including the launch of the first Swiss crypto asset investment fund.
The BaFin licensing aligns Crypto Finance with the upcoming Markets in Crypto-Assets (MiCA) regulatory framework, set to partially come into effect in 2024, ensuring compliance with emerging European regulations. This regulatory milestone not only strengthens Crypto Finance's market position but it also complements Deutsche Börse's broader digital strategy. This includes the digital asset securities registry D7, developed by Deutsche Börse subsidiary Clearstream, which is anticipated to play a crucial role in the new DBDX exchange's infrastructure.
This approval by BaFin contrasts with its decision in June of 2023 to reject a crypto custody license application from Binance, while approving similar applications from Deutsche Bank, Boerse Stuttgart Digital blocknox, and the U.S.-based BitGo.
