The embattled estate of collapsed cryptocurrency exchange FTX has launched a $1.8 billion lawsuit against Binance and its former CEO, Changpeng Zhao (CZ), in a legal move that underscores the escalating tensions in the crypto sector following FTX's catastrophic downfall. Filed in Delaware, the complaint alleges that Binance and Zhao were involved in a "fraudulent" 2021 share deal that destabilized FTX, ultimately leading to its collapse.
At the heart of the lawsuit is a July 2021 share repurchase agreement in which FTX, under co-founder Sam Bankman-Fried, bought back a 20% stake in FTX International and an 18.4% interest in its U.S. affiliate, West Realm Shires Services, from Binance. The transaction was allegedly funded using a mix of FTX and Binance-issued tokens, as well as Binance's dollar-pegged stablecoin, in a deal valued at approximately $1.76 billion. According to the FTX estate, this transaction was orchestrated through its trading arm, Alameda Research, which it claims was already insolvent at the time.
The complaint describes the deal as a "constructive fraudulent transfer," pointing to the financial instability of Alameda Research as evidence that FTX lacked the capacity to fund the buyback. The estate asserts that this transaction played a critical role in FTX's subsequent financial ruin. Bankman-Fried, currently serving a 25-year sentence for charges related to FTX's bankruptcy and customer fund mismanagement, has been named a key figure in these dealings.
In a firm denial of the allegations, Binance stated that the claims are "meritless" and vowed to "vigorously defend" itself against the lawsuit. The legal action comes against a backdrop of growing friction between two of the largest players in the cryptocurrency space, following the rapid collapse of FTX and its ripple effect on global markets.
Once valued at $32 billion, FTX collapsed amid a torrent of customer withdrawals that the exchange was unable to satisfy, sending shockwaves through the crypto market. Binance's Zhao, a prominent figure in the sector, faced scrutiny for a series of public statements in late 2022, which FTX's estate claims exacerbated the exchange's liquidity crisis. In one tweet on Nov. 6, Zhao announced Binance's decision to liquidate its holdings of FTX's native token, FTT, citing "post-exit risk management." The timing and nature of these statements, the estate contends, were part of a deliberate campaign to weaken FTX and bolster Binance's competitive position.
The FTX estate further argues that Zhao's subsequent offer to acquire FTX was a calculated maneuver, intended not as a genuine attempt to rescue the beleaguered exchange but as a strategy to undermine confidence in its operations. "By the time Zhao sent the first tweet in the Nov. 6 thread, Binance had apparently already sold a massive amount of FTT in a single trade," the complaint reads, adding that this was done in a manner that maximized market impact and accelerated FTX's collapse.
Adding to the legal drama, FTX's allegations of market manipulation and misleading statements are not the first of their kind against Binance. The lawsuit also highlights how tensions between Zhao and Bankman-Fried reached a boiling point in 2022, with accusations of a "months-long coordinated FUD [fear, uncertainty, and doubt] campaign" by Binance to destabilize FTX.
The case is the latest in a series of lawsuits initiated by the FTX estate in an effort to recover lost assets and pay back creditors. Previous legal actions have targeted entities such as SkyBridge Capital and crypto exchange KuCoin. The stakes are high, as FTX attempts to claw back billions lost in one of the most dramatic corporate collapses in financial history.
