The embattled estate of the bankrupt cryptocurrency exchange, FTX, has launched a significant legal assault against Binance and its former CEO, Changpeng Zhao. This lawsuit, amounting to a staggering $1.8 billion, accuses Binance of orchestrating fraudulent transfers and engaging in a strategic campaign to undermine its competitor. This legal action is part of a broader effort by FTX, following the filing of 23 other lawsuits last Friday, to recover a portion of the misallocated funds.
Binance Faces $1.8 Billion Legal Challenge
On a recent Sunday, FTX initiated legal proceedings in the US Bankruptcy Court for the District of Delaware. The lawsuit targets the global crypto exchange Binance, along with its former CEO Changpeng Zhao, in an effort to reclaim $1.76 billion of creditors’ funds. The court documents reveal that FTX’s bankruptcy estate contends that the repurchase deal of FTX’s stake, orchestrated by its co-founder and former CEO, Sam Bankman-Fried, via its sister company, Alameda Research, was fraudulent.
In the period between 2019 and 2020, Binance secured a 20% stake in FTX International and an 18.4% stake in its US-based unit, establishing itself as the exchange’s second-largest shareholder. However, by July 2021, Bankman-Fried, commonly referred to as SBF, executed a repurchase of the stock for $1.76 billion. This transaction was facilitated through a combination of FTX’s native FTT token, Binance Coin (BNB), and Binance USD (BUSD). FTX’s estate asserts that the exchange and its affiliate company may have been insolvent from the outset, and were certainly balance-sheet insolvent by early 2021, rendering the repurchase deal fraudulent.
FTX Alleges Fraudulent Transfer Due to Insolvency
The lawsuit further elaborates that Caroline Ellison, the former CEO of Alameda Research who is now incarcerated, had previously testified that the repurchase deal involved the use of customer deposits. Ellison, serving as a key witness in SBF’s prosecution, disclosed that Bankman-Fried proceeded with the transaction to obscure the company’s insolvency.
CZ and Binance’s Alleged Campaign Against FTX
The lawsuit accuses Binance’s co-founder and former CEO, Changpeng Zhao, of leading a deliberate campaign to destroy FTX. The legal document alleges that Zhao disseminated a series of false, misleading, and fraudulent tweets designed to sway customers against the now-bankrupt exchange. Additionally, the estate claims that Zhao and Binance orchestrated maliciously calculated efforts, characterized by months-long coordinated FUD (Fear, Uncertainty, and Doubt), aimed at undermining FTX in 2022.
The Impact of Zhao’s Tweets on FTX
According to the lawsuit, Zhao’s tweets on November 6, 2022, exacerbated FTX’s withdrawal issues. Zhao had publicly announced that Binance would divest all its FTT tokens, valued at $529 million at the time, in response to recent revelations. This announcement triggered a surge in withdrawals, intensifying FTX’s financial distress. The lawsuit contends that Binance’s decision to publicize its FTT token sale was strategically executed to maximize the public relations impact and boost Binance’s market share.
In response, a spokesperson for Binance told Bloomberg that the claims are without merit and that the exchange is prepared to vigorously defend itself. This legal action is one of many, as FTX has filed 23 other lawsuits against various entities, including Crypto.com from Singapore, Mark Zuckerberg-founded advocacy group FWD.US, and Anthony Scaramucci’s hedge fund SkyBridge Capital, to recover funds misallocated prior to the anticipated creditors’ payout scheduled for late 2024.
