Chengpeng Zhao's Binance Scandal

Yesterday, Binance Holdings Ltd, the world’s largest digital currency exchange, was slapped with the largest criminal penalty in the history [The Daily Peel... ]( November 22, 2023 | Peel #591 In this issue of the Peel: - Yesterday, the Federal Open Market Committee (FOMC) published their meeting minutes for the previous meeting held on Oct 31-Nov 1. - Burlington Stores and DICK's Sporting Goods had a ripe day, whereas American Eagle Outfitters and Kohl's suffered share price declines. - Yesterday, Binance Holdings Ltd, the world’s largest digital currency exchange, was slapped with the largest criminal penalty in the history of the U.S. Treasury. Market Snapshot Happy Wednesday, apes. Shoutout to all our fellow Americans out there fasting today in preparation for the best meal of the year tomorrow. Just don’t remind us yet of the inevitable pain ahead Friday morning on the bathroom floor. Speaking of pain, the feeling was fairly sporadic on Wall Street yesterday. It was a big day for retail earnings, as you’ll know all too well by reading below, but Fed Minutes and shenanigans in digital currency markets kept us on our toes. Equities were mixed to lower for the day, with small caps taking the brunt and losing 1.29% via the Russell 2k. The Dow’s 0.18% loss was the top performance of the day, edging out the other shenanigans going on in the WSO Alpha portfolio given the day’s loss of 0.34%. What a shocker. Treasuries, in the meantime, were also mostly mixed to lower in terms of yields. The 2-year barely moved, settling near the 4.9% level, while the 10-year is chilling right around 4.40%. Let’s get into it. The Ultimate Program to Land a 6-figure Job in High Finance [image]() With over 17 years of experience, 900k+ members, and an insane network, WSO has cracked the code to making 6 figures right out of undergrad. We’ve helped over 1k students from all backgrounds break into these careers. WSO Academy is a 12-week program (with many lifetime benefits) that puts everything we’ve learned on a silver platter for you—to dramatically improve your odds at landing a high finance offer. The waitlist for WSO Academy just opened again, and we’re only accepting 20 students into the next cohort. So if you’re serious about breaking into high finance, you need to sign up for the waitlist asap because we are opening applications next week (people on the waitlist will be the first to know). [Get on the waitlist -> Applications opening next week and capped at 300]( (so we can review all of them carefully). No reason for you to be sleeping on this. Banana Bits - Nvidia’s earnings report has been more anticipated than Turkey’s this week, and we finally got the [numbers yesterday.]( Yes, it went exactly as you’d expect. - The WSJ dove deep into the [board members]() who made the dumbest decision in all of Corporate America in 2023 at none other than OpenAI. Macro Monkey Say Give Us a Minute Well, shoutout to Chair Jerome Powell on Tuesday for managing to make it through an entire public statement without using the F-word. Another strong performance from the head of one of the most important financial institutions the world has ever seen. Thankfully for him, this public statement was written instead of a speech, allowing him to proofread and omit other expletives the statements ostensibly contained. Like every FOMC meeting, if you wait long enough, you get the chance to see what voting members actually think through the Fed Minutes. Here, we get a glimpse at the debate, discussion, and debauchery that occurs in the Eccles Building out in DC as they decide the financial fate of all 340 million Americans. Alright, I guess we can tone down the drama from here, but dammit, making minutes from a central bank meeting truly is a tall task. Still, we’ll do our best. The primary takeaway from the report is that there is absolutely nothing new going on. “All participants agreed that the committee was in a position to proceed carefully.” Guess they haven’t been proceeding carefully up until now, but who cares? You know it’s just a $25 trillion economy they’re impacting. Aside from that statement being utterly meaningless, it’s been identified as the key statement of the minutes. Basically, the Fed is using Fedspeak to tell us that they don’t have plans to raise rates again in the foreseeable future. "... the Fed is using Fedspeak to tell us that they don’t have plans to raise rates again ..." As always, in macro, that is certainly subject to change. But the market took the Minutes in stride as the information within really was less surprising than the drunken, borderline-racist rant your grandparents are set to drop at tomorrow’s dinner. Anyway, to highlight some key moments where the FOMC did actually make statements that mean something, they said: - “Participants expected that the data arriving in coming months would help clarify [the inflation picture].” - “Easing labor market imbalances were apparent in the wage data, with the 12-month changes in average hourly earnings and the employment cost index each below their year-earlier levels.” - “The increase in longer-term Treasury yields appeared to be mostly attributable to higher term premiums, as stronger-than-expected economic data seemed to increase the uncertainty regarding how long policy rates might need to remain high.” - “The staff expected fourth-quarter GDP growth to slow markedly from its third-quarter rate.” - “… incoming data on consumer spending had again surprised to the upside, likely supported by a strong labor market and by generally solid household balance sheets. Nevertheless, some participants remarked that the finances of some households… were increasingly coming under pressure amid high prices for food and other essentials as well as tight credit conditions. "... take your time, and most importantly, don’t hurt yourself trying to read it all at once ..." Sorry, apes, I know some of those were long and scary, but take your time, and most importantly, don’t hurt yourself trying to read it all at once (like I did). Plus, spending too much time reading the [actual minutes](=) might cause all 17 of our combined brain cells to implode. To summarize the message in English, the Fed is saying: - Inflation and other signs of the economy running too hot have continued to retreat, decreasing the odds of a need to raise rates again in December. - In fact, these signs may have gone as far as to reverse course and present a much slower growth picture in Q4. - Financial conditions have remained strong but deteriorated, particularly with the term premium on Treasuries and the impacts that have on the broader economy, such as in mortgage rates and foreign assets. - We don’t know what to do even more than usual. A deeper readthrough likely would unveil an FOMC that knows it has slammed the brakes too hard and wants to ease off but knows that if they say that, the market will immediately do its job for them and ruin the whole thing. So, better to act indifferent than goad the market into doing something you don’t want it to. It’s kind of like the Hawthorne Effect—which states that sometimes, when an observation is made or is being made, the very thing being observed can and will change. The JPOWthorne effect is in full blast. We’ll see you at the next FOMC meeting on Dec 12-13th. What's Ripe Burlington Stores (BURL) ↑ 20.74% ↑ - We know that [Michael Scott]( is a big fan of Burlington Coat Factory, but what we learned yesterday is that the rest of the U.S. is, too. Low-price retailers continued their trend of strong earnings this quarter, as long as they’re not named Walmart. - Prior to yesterday’s amphetamine-induced rip, Burlington shares had been declining all year, losing just over 1/3rd of its value as if they held shares in SVB or FTX or something. But Mr. Market fell back in love yesterday thanks to strong inventory management and margin expansion. - Earnings came in at $0.98/sh on $2.29bn, coming right in line with estimates for $0.97/sh on the exact same revenue figure. - Given that earnings were so close to estimates, it might seem a little strange for shares to have ripped so much on the day, but this largely relates to our other point that shares had been hammered all year leading up to this release. Plus, execs had only good news for the next quarter and full year, so what’s not to love? DICK’S Sporting Goods (DKS) ↑ 2.17% ↑ - The funniest-named retailer in the world (who could have had the funniest ticker of all time) managed to flip “heads” on the coin toss of Q3 retail earnings performance and came out on top. - Shares in the sports/outdoor recreation retailer got a nice uptick on a solid beat for the quarter. EPS came in at $2.85/sh on $3.04bn vs expectations for $2.44 on $2.94bn. - Sadly, but thankfully, one big driver of the beat was a reduction in “shrink”—a.k.a. stealing by “customers”—that’s gone so well that the company actually said it was “excited” for Q4. As you’ll see below, that was a hot take, to say the least. What's Rotten American Eagle Outfitters (AEO) ↓ 15.80% ↓ - The Steve Miller Band famously once said, “I want to fly like an eagle.” Similarly, American Eagle shareholders were hoping for the same thing, but unfortunately, their stock chose to follow Tom Petty’s “Free Fallin’” instead. - The iconic American brand American Eagle looked more like the turkey that Thomas Jefferson famously wanted to be the national symbol of the U.S. Shares nosedived despite not-so-bad earnings on a bad forecast. - EPS came in at $0.49/sh on $1.3bn in sales vs street estimates pricing in earnings of $0.48/sh on $1.28bn. So, American Eagle gave analysts exactly what they wanted, but weak demand expectations for the crucial holiday quarter sent shares into freefall. Kohl’s (KSS) ↓ 8.57% ↓ - Every kiss begins with K. We all obviously know that, but every plummet in share price begins with a bad earnings report, apparently. At least, that seemed to be the case on Tuesday. - In our final edition of the Re-Tale of Two Cities that we’re seeing today, Kohl’s stock was brutalized largely for the same reasons as above—weak expected demand in the key holiday quarter. - On the bottom line, the retailer kicked *ss, delivering $0.53/sh vs. expectations of $0.35/sh. On the other hand, sales of $3.8bn came up short of the $3.9bn expected. Plus, it probably didn’t help that this marks the 7th straight quarter of declining same-store sales, the key metric in retail. - According to CEO Tom Kingsbury, it’s just a slight blip on the path to a much stronger position. It’s almost like he gets paid to say that, but analysts largely see the worst as behind them despite the expectations for a weak Q4. They’re waiting for a cleanup on the firm’s balance sheet before turning bullish, but spring cleaning szn is a long way away. Thought Banana When the Music Stops (in)Famous banking executive John Tuld of the notoriously unnamed firm in the cinematic masterpiece Margin Call famously once said: “So, what you're telling me is that the music is about to stop, and we're going to be left holding the biggest bag of odorous excrement ever assembled in the history of capitalism.” Poetic. Being the genius banking exec that he is, Tuld was right on the money (no pun intended), and his firm—often believed to be based on Lehman Brothers—did, in fact, go kablooie. Now, Binance has a slight idea of what that’s like. The music in the cryptocurrency market hasn’t entirely stopped, but the speakers have been blown, and the volume has drastically reduced for the past few years. Usually, the digital currency market is bumping some kind of EDM/techno hype-up beat, but yesterday, it was nothing but the classical sounds of cold, hard justice. Yesterday, Binance Holdings Ltd, the world’s largest digital currency exchange, was slapped with the largest criminal penalty in the history of the U.S. Treasury. The firm has been ordered to pay $4.3bn in total, along with an additional $50mn charged to CEO and founder Chengpeng Zhao, a.k.a, “CZ.” "Binance and CZ didn’t actively steal money from their customers like SBF and FTX (as far as we know), but they did some uniquely stupid sh*t ..." This scumbag has been taking a victory lap since that other scumbag at FTX started soaking up all the hate thrown at the digital asset industry. Binance and CZ didn’t actively steal money from their customers like SBF and FTX (as far as we know), but they did some uniquely stupid sh*t of their own. Basically, the charges were brought on violations of the Bank Secrecy Act, the International Emergency Economic Powers Act, and a plethora of other minor laws. The chief violations of these laws include: - Failing to register as a Money Services Business (MSB) with the U.S. Treasury for Binance.US and Binance Holdings - Violations of various U.S. and international sanctions - Failing to maintain an effective anti-money laundering control system - No clear separation between U.S. and international businesses - Wilfully allowing transactions involving illicit activities to be done through the company There’s a lot more, but that’s just some of the worst of it. It’s a big reminder to all involved in digital assets and finance more generally that, when it comes to money laundering and other financial crimes, the U.S. does not f*ck around. Selling money is different, and for Binance, the music has now stopped here in the U.S. In addition to the above financial penalties, CZ will also be forced to step down from his CEO chair and be banned from employment at the firm for at least three years. "... Binance was accused of engaging in activities that allowed organizations like Hydra to ..." More specifically, Binance was accused of engaging in activities that allowed organizations like Hydra to transact >$106mn on the platform, encouraging U.S.-based “whales” to use VPNs to skirt local restrictions, and much more. One moron employed by the exchange even wrote a message on company channels opining that they “need a banner that said ‘Is washing drug money too hard these days? Come to Binance!’.” Classy. The company will also now be forced to file SARs, or suspicious activity reports, that every other U.S. financial institution must file to remain compliant with the BSA. Basically, they now have to actually follow laws. Most sad of all, CZ has officially lost his title as the hero of crypto against the villainous thief that we all now know SBF is. Not only has the music stopped, but the whole party has for CZ. The big question: What else is in store for Binance? Can we really trust any of these digital currency giants? What does the future of this industry look like, and how will it be regulated, if any regulations are in place at all? Banana Brain Teaser Yesterday — When Sumei opens a book, two pages face her. If the product of the two-page numbers is 3192, what are the two-page numbers? Answer 56 and 57 Today — Cathy has six pairs of black gloves and six pairs of brown gloves in her drawer. In complete darkness, what is the least amount of gloves she must take from the drawer in order to be sure to get a pair that match? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks”—John Bogle How would you rate today’s Peel? [All the bananas]( [Decent]( [Rotten AF](=) Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](. [ADVERTISE]( // [WSO ALPHA]( // [COURSES]() // [LEGAL]() Don't want The Daily Peel? [Unsubscribe here](=). Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States