Binance & Ex-CEO CZ Faces $1.8B Lawsuit by FTX

The FTX bankruptcy estate is intensifying its legal actions against cryptocurrency companies, with its most recent filing directed at Binance.

On 10 November, a group of firms involved in the ongoing FTX proceedings filed a lawsuit seeking to recover $1.8 billion.

The complaint alleges that Binance, former CEO Changpeng Zhao (CZ), and other executives received at least $1.76 billion in cryptocurrency through a fraudulent transfer from FTX.

This latest action underscores the estate's continued efforts to reclaim funds for creditors amidst its complex bankruptcy process.

FTX and Alameda Allegedly Insolvent from the Outset

The FTX bankruptcy estate is pursuing claims that a July 2021 stock repurchase agreement involving Sam Bankman-Fried (SBF), FTX's co-founder currently serving a 25-year prison sentence, was fraudulent.

The deal saw SBF sell about 20% of FTX International and 18.4% of FTX US (West Realm Shires Services) in exchange for a mix of FTX Tokens (FTT), Binance's BNB, and Binance USD (BUSD), valued at $1.76 billion at the time.

The estate argues that the transaction was fraudulent due to FTX and its sister firm Alameda Research's insolvency by early 2021.

Former CEO of Alameda Caroline Ellison, who has recently reported to prison to begin her two year sentence, testified that the firm lacked the necessary funds to repurchase the shares, forcing Alameda to borrow over $1 billion from FTX's customer deposits.

She also stated that SBF disregarded her concerns, deeming the deal essential for market confidence.

The lawsuit also accuses CZ of orchestrating a "campaign to destroy FTX," alleging that Binance engaged in a prolonged disinformation effort against FTX throughout 2022.

This includes Binance's large-scale liquidation of FTX's FTT token before the collapse of FTX in November 2022, which the plaintiffs argue was part of a deliberate strategy to weaken FTX and bolster Binance’s market position.

An investor close to SBF further testified in a Senate hearing that SBF and CZ were in direct competition, with one ultimately seeking to eliminate the other.

CZ Accused of Misleading Statements

The FTX bankruptcy estate's lawsuit accuses CZ of using a series of misleading and malicious tweets, including his infamous 2022 post, to trigger a mass withdrawal of funds from FTX.

The estate claims these tweets were strategically designed to damage FTX and undermine its stability, accusing CZ of showing reckless disregard for FTX's customers and creditors.

The filing asserts that Binance's liquidation of FTT was not aimed at minimising market impact, as CZ had suggested, but rather at maximising harm by driving the token's price down, damaging FTX and increasing Binance's market dominance.

It added:

“By the time Zhao sent the first tweet in the Nov. 6 tweet thread, Binance had apparently already sold a massive amount of FTT in a single trade.”

Furthermore, the estate argues that Binance never intended to complete its proposed acquisition of FTX during the liquidity crisis, as CZ had publicly claimed.

Instead, it asserts that CZ's statements and a letter of intent to acquire FTX were crafted to create a facade of due diligence, blocking FTX from exploring alternative financing options, and ultimately harming both FTX and its creditors:

“FTX and its creditors were harmed by Binance's and Zhao's false and misleading statements that they intended to acquire FTX, as well as their false and misleading subsequent statements regarding the reason why they decided not to acquire FTX.”

This lawsuit is part of a broader effort by the FTX bankruptcy estate, which also filed a complaint against SkyBridge Capital and its founder, Anthony Scaramucci, just a few days back, seeking to recover over $100 million spent on sponsorships and investments by SBF.

Earlier in October, FTX's sister firm, Alameda Research, filed a suit against crypto exchange KuCoin, seeking to recover more than $50 million in locked assets.