The FTX bankruptcy estate is continuing its pursuit of lawsuits against cryptocurrency companies as part of its ongoing proceedings, with the latest filing targeting Binance.
A group of firms involved in the FTX bankruptcy proceedings have initiated a lawsuit against cryptocurrency exchange Binance, seeking to recover $1.8 billion, according to a complaint filed on Nov. 10.
In the filing, the plaintiffs argued that Binance, its former CEO Changpeng “CZ” Zhao and other Binance executives received at least $1.76 billion worth of cryptocurrency in a fraudulent transfer from FTX.
FTX and Alameda “may have been insolvent from inception”
The FTX estate claims the fraudulent transaction stems from a July 2021 repurchase deal with Sam Bankman-Fried, the FTX co-founder who is now serving a 25-year prison term.
Bankman-Fried sold approximately 20% of FTX International and 18.4% of FTX US, also known as West Realm Shires Services.
An excerpt from the FTX estate’s complaint against Binance. Source: Kroll
According to the filing, Bankman-Fried paid for the stock repurchase using a mix of FTX’s FTX Token (FTT) and Binance-operated BNB (BNB) and Binance USD (BUSD), valued at $1.76 billion at the time.
The filing further claims that FTX and its sister firm, Alameda Research, were insolvent by early 2021, making the share repurchase deal fraudulent.
Binance’s CZ had a “campaign to destroy FTX,” the plaintiff argues
The lawsuit also alleges that Zhao orchestrated a “campaign to destroy FTX,” citing Binance’s role in undermining the rival exchange.
The filing mentioned that the FTX suspected that Binance was engaged in a “months-long coordinated FUD [fear, uncertainty and doubt] campaign against FTX” in 2022. An investor close to Bankman-Fried also testified in a United States Senate hearing that Zhao and Bankman-Fried “were at war with each other, and one put the other out of business, intentionally.”
The plaintiffs went on to say that Binance’s massive FTT liquidation before the FTX collapse in November 2022 and CZ’s public statements on the matter were “part of a deliberate strategy to destroy FTX and improve Binance’s market position.”
Former Binance CEO Changpeng Zhao’s X thread on FTT liquidation in November 2022. Source: Kroll
Estate accuses CZ of misleading statements
The FTX estate argues that Binance’s liquidation of FTT was not done in a manner that would “minimize the market impact,” as Zhao had claimed. Instead, the plaintiffs contend that Zhao’s actions were meant to maximize market impact, causing the price of FTT to drop and damaging FTX while increasing Binance’s market share. 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.”
The FTX estate also argued that Binance “never intended to consummate the contemplated acquisition” of FTX amid the liquidity crunch, as CZ claimed.
Related: Binance founder CZ sees positive shift in crypto regulation worldwide
According to the filing, Zhao’s public statements and a letter of intent to acquire FTX were designed to create the impression that Binance was conducting due diligence, preventing FTX from seeking alternative financing, and ultimately harming 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.”
The latest lawsuit against Binance joins a growing number of similar lawsuits by the FTX bankruptcy estate.
On Nov. 9, the estate filed a complaint against SkyBridge Capital and founder Anthony Scaramucci to recover more than $100 million spent by Bankman-Fried on sponsorship and investment deals.
Previously, FTX’s sister firm Alameda Research sued crypto exchange KuCoin to recover over $50 million in locked assets in late October.
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