FTX accuses Binance exchange and founder Changpeng Zhao (CZ) of waging a “campaign of sabotage,” demanding the defendant repay $1.8 billion.
Two years ago today, FTX made one of the biggest shocks to the cryptocurrency market when it declared bankruptcy. The world’s third-largest cryptocurrency exchange collapsed overnight, leaving millions of users around the world in debt. Financial scandals followed, and FTX founder Sam Bankman-Fried (SBF) is serving a 25-year prison sentence. Meanwhile, FTX’s legal team is still trying to recover funds to repay users.
One of their latest moves is to file a lawsuit against Binance and billionaire Changpeng Zhao (CZ) to recover $1.8 billion.
"Fraudulent" transactions
In a lawsuit filed in the Delaware District Court (USA), FTX's legal team claimed that CZ and Binance made a fraudulent transaction with Sam Bankman-Fried, then CEO of FTX.
Specifically, in July 2021, Bankman-Fried offered to buy back Binance and CZ's shares in FTX using FTX's own FTT token and BNB (Binance's token). The share buyback was carried out by the Alameda fund founded by SBF.
In the lawsuit, Alameda representatives said that when the transaction took place, the fund had no money at all. They had to borrow money back from FTX to pay CZ and Binance. However, the plaintiffs argued that at that time FTX was illiquid, the FTT token was completely worthless, so this transaction was considered "fraudulent".
FTX's legal team claims that the contract is completely worthless, demanding that Binance and CZ return the equivalent of $1.8 billion they received. Not stopping there, the team also accused CZ himself of "launching" a sabotage campaign to overthrow FTX.
"Sabotage Campaign"
Sam Bankman-Fried's "sandcastle" collapsed when CoinDesk began to reveal irregularities in the balance sheet between the FTX exchange and the Alameda fund, in early November 2022. On November 7, CZ announced that he would liquidate approximately $2 billion worth of FTT tokens as a "necessary risk management step." The news immediately sent shockwaves through the community. Rumors of FTX's "collapse" began to circulate in the community.
A day later, the Binance founder announced a strategic agreement between the two parties, aiming to save FTX. But on November 9, CZ "turned around", announced that he would withdraw from the agreement and sell all FTT tokens he held due to concerns about a similar crash to the "Luna stain".
"We had hoped to provide liquidity support to FTX users, but this was beyond our capabilities. After due diligence and considering the news, plus the SEC (Securities and Exchange Commission) allegations, we are unable to proceed with the FTX acquisition," Binance announced on November 10, 2022. CZ later tweeted (current X): "Sad day. We tried, but...".
The FTT token price fell from $22 to $2.40. A massive sell-off occurred, wiping out over $2 billion in market capitalization. FTX collapsed, leaving behind many financial holes that could not be filled.
Two years later, in a lawsuit filed in court, FTX's legal team blamed the company's collapse on a "campaign of sabotage" by CZ and Binance. The plaintiffs claimed that billionaire Changpeng Zhao deliberately engineered a FUD (Fear, Uncertainty, Doubt) event to undermine his rival and increase Binance's market share. The plaintiffs also pointed out that the discord between CZ and SBF had lasted for many years, so it was understandable that the Binance founder would seek to "destroy" FTX.
In response to those allegations, a Binance spokesperson told CoinDesk: “These claims are baseless and we will take decisive action to defend ourselves.”
Two years ago, FTX was one of the largest cryptocurrency exchanges in the world. It was founded by Sam Bankman-Fried, born in 1992. However, after news of the company's financial flaws were revealed, FTX went bankrupt overnight. Bankman-Fried was sentenced to 25 years in prison for fraud. FTX has been restructured and plans to compensate millions of users around the world. One of the actions of the legal team is to seek to recover debts and misused spending to make up for the financial shortfall.
Meanwhile, Changpeng Zhao was also recently released from prison after serving a four-month sentence in the US. He also gave up his CEO position, while Binance was fined $4.3 billion for violating anti-money laundering laws and other sanctions.