FTX’s bankruptcy estate has filed a $1.8 billion lawsuit against Binance and its former CEO, Changpeng Zhao (CZ), accusing them of fraudulent transfers and a campaign to destroy FTX. This legal action follows 23 other lawsuits filed by FTX last Friday, aimed at recovering misused funds. The case was filed on Sunday in the US Bankruptcy Court for the District of Delaware, where FTX seeks to reclaim $1.76 billion for its creditors.
According to the lawsuit, FTX alleges that its former CEO, Sam Bankman-Fried (SBF), orchestrated a repurchase deal in 2021 to buy back Binance’s stake in FTX. Binance had acquired a 20% stake in FTX International and an 18.4% stake in its US branch between 2019 and 2020, making it one of FTX’s largest shareholders. However, by July 2021, Bankman-Fried paid $1.76 billion to buy back Binance’s stake using a mix of FTT tokens, Binance Coin (BNB), and Binance USD (BUSD).
The FTX estate argues that the deal was fraudulent, claiming FTX was likely insolvent from its beginning and clearly balance-sheet insolvent by early 2021. The court documents also highlight testimony from Caroline Ellison, former CEO of Alameda Research, who stated that the repurchase was conducted with customer funds. Ellison, now a witness in Bankman-Fried’s criminal trial, claimed that the deal was part of an effort to cover up FTX's financial troubles.
Additionally, the lawsuit accuses Zhao of attempting to ruin FTX’s reputation through what it describes as a “campaign to destroy FTX.” The estate claims that Zhao used Twitter to spread “false, misleading, and fraudulent information” to undermine FTX and turn customers away from the platform. Specifically, the document points to tweets Zhao posted on November 6, 2022, in which he announced Binance’s plan to sell its FTT holdings—then valued at $529 million. This announcement came after certain revelations regarding FTX’s finances surfaced, leading to a surge in withdrawal requests. The lawsuit contends that Zhao’s public statement on the sale was designed to maximize its market impact rather than minimize disruption, arguing that it was a strategic move to boost Binance’s market position.
In response, a Binance spokesperson called the lawsuit “meritless” and pledged that Binance would “vigorously defend” itself against the allegations.
This lawsuit is part of FTX’s larger strategy to recover funds lost through alleged mismanagement by SBF and Alameda Research. These lawsuits are an attempt to secure money for FTX’s creditors, who are expected to begin receiving payouts by late 2024. Other recent lawsuits by FTX include actions against the Singaporean exchange Crypto.com, Mark Zuckerberg's immigration and justice group FWD.US, and Anthony Scaramucci’s SkyBridge Capital.
FTX’s allegations underline the high-stakes nature of the crypto market, where power struggles and financial maneuvers can have severe consequences. This legal battle between FTX and Binance exemplifies the complex issues surrounding the crypto world’s rapid expansion and competition.
