FTX Files $1.8 Billion Lawsuit Against Binance and Changpeng Zhao
FTX has initiated a $1.8 billion lawsuit against Binance and its former CEO, Changpeng Zhao (CZ), claiming fraudulent transfers and a campaign to undermine FTX. This lawsuit is part of 23 other legal actions filed by FTX to recover misappropriated funds. The case was submitted in the US Bankruptcy Court for the District of Delaware, with FTX seeking to reclaim $1.76 billion for creditors.
The lawsuit asserts that former CEO Sam Bankman-Fried (SBF) orchestrated a repurchase in 2021 to buy back Binance's stake in FTX, which comprised a 20% stake in FTX International and an 18.4% stake in its US branch. By July 2021, Bankman-Fried paid $1.76 billion using a combination of FTT tokens, Binance Coin (BNB), and Binance USD (BUSD).
FTX argues this deal was fraudulent, asserting that the company was likely insolvent from its inception and clearly balance-sheet insolvent by early 2021. Testimony from Caroline Ellison, former CEO of Alameda Research, indicates that customer funds were used for the repurchase, as part of efforts to conceal FTX's financial difficulties.
The lawsuit also accuses Zhao of launching a “campaign to destroy FTX.” It claims Zhao disseminated “false, misleading, and fraudulent information” via Twitter to damage FTX’s reputation, particularly through his November 6, 2022, announcement of Binance's intention to sell its FTT holdings worth $529 million. This announcement followed revelations about FTX’s finances and resulted in increased withdrawal requests. The lawsuit contends this statement was strategically timed to benefit Binance's market position.
A Binance spokesperson characterized the lawsuit as “meritless” and stated that the company would “vigorously defend” itself against the claims.
This lawsuit aligns with FTX’s broader strategy to recover funds lost due to alleged mismanagement by SBF and Alameda Research. Other recent lawsuits target entities such as Crypto.com, FWD.US, and SkyBridge Capital. These actions aim to secure compensation for FTX’s creditors, who may start receiving payouts by late 2024.
FTX’s allegations highlight the intense dynamics within the crypto market, where competitive strategies can lead to significant repercussions. This legal battle between FTX and Binance illustrates the complex challenges associated with the rapid growth and competition in the cryptocurrency sector.