In a significant escalation of its ongoing legal actions, the FTX bankruptcy estate has filed a $1.8 billion lawsuit against cryptocurrency exchange Binance and its former CEO, Changpeng Zhao, claiming that a 2021 share repurchase deal between FTX and Binance was fraudulent. The lawsuit, filed on Nov. 10, argues that Binance received $1.76 billion from FTX in what the estate describes as an improper transfer that took place when FTX and its sister trading firm, Alameda Research, were already insolvent.
The case focuses on a July 2021 transaction in which FTX co-founder Sam Bankman-Fried allegedly agreed to buy back shares in FTX that Binance had previously acquired. Bankman-Fried reportedly paid for this deal with a mix of FTX’s native token, FTX Token (FTT), and Binance’s own assets, BNB and Binance USD (BUSD), valued at $1.76 billion at the time. According to the estate, FTX and Alameda Research were “insolvent from inception,” meaning the repurchase was invalid, as it unfairly prioritized Binance over FTX’s creditors.
The estate’s complaint contends that FTX’s poor financial standing at the time made this deal a “fraudulent transfer” that ultimately drained funds which could have gone to other creditors or stayed within the business.
Allegations of Market Manipulation and Rivalry
In addition to the accusation of fraudulent transfer, the lawsuit also details what the FTX estate describes as a “campaign to destroy FTX” allegedly orchestrated by Zhao. The estate claims that Binance engaged in a series of actions, including a large-scale liquidation of its FTT holdings in 2022, that had a substantial negative impact on FTX’s financial health and public image. Zhao’s public announcements about Binance’s liquidation of FTT led to increased market uncertainty and contributed to a rapid decline in FTT’s price, creating a liquidity crisis for FTX that precipitated its downfall in November 2022.
The lawsuit suggests that Binance’s actions were part of a “months-long coordinated FUD [fear, uncertainty, and doubt] campaign against FTX,” aimed at weakening FTX’s market position. Citing testimony from an investor close to Bankman-Fried, the FTX estate’s filing alleges that Zhao and Bankman-Fried were in a “competitive conflict” that escalated into a destructive rivalry, ultimately leading to FTX’s collapse.
False and Misleading Statements by Zhao, Claims Estate
The FTX estate further accuses Zhao of making misleading public statements about Binance’s intentions regarding a potential acquisition of FTX during its liquidity crisis in November 2022. The lawsuit claims that Zhao’s announcement of a letter of intent to acquire FTX, which he later retracted, was a calculated move designed to create the illusion of due diligence, thereby preventing FTX from securing alternative financing. By the time Zhao withdrew Binance’s acquisition offer, FTX was reportedly unable to find other investors or funding sources, hastening its insolvency.
The estate alleges that Zhao’s statements were intended to cause maximum market disruption, damaging FTX’s value while simultaneously bolstering Binance’s position within the cryptocurrency market.
Part of Broader FTX Estate Legal Efforts
This lawsuit is part of a series of recent legal actions by the FTX bankruptcy estate, which has been working to recover assets and funds lost through what it describes as questionable transactions made by FTX’s former management. On Nov. 9, the estate filed a similar lawsuit against SkyBridge Capital and its founder Anthony Scaramucci, seeking to reclaim over $100 million allegedly spent by Bankman-Fried on various sponsorship and investment agreements. In another case, FTX’s Alameda Research arm recently filed a lawsuit against KuCoin to recover over $50 million in assets that are reportedly locked on KuCoin’s platform.
As the FTX bankruptcy proceedings continue, the estate’s actions reflect a concerted strategy to investigate and pursue potential sources of recovery for creditors, many of whom were impacted by the platform’s abrupt failure in late 2022. Binance and Changpeng Zhao have yet to make a public statement in response to the latest lawsuit, which adds to a growing list of legal battles facing the world’s largest cryptocurrency exchange.
Source: Binance Blog
Photo Credits: Binance Blog
