The FTX estate is suing Binance and its former CEO, Changpeng Zhao, in a bid to recover $1.8 billion that it claims was fraudulently transferred during a 2021 deal. The lawsuit, filed in Delaware, centers on Binance’s sale of its FTX stake, a transaction allegedly funded by FTX’s Alameda Research division—despite Alameda’s insolvency at the time. FTX argues the funds were misappropriated, leaving creditors at a significant disadvantage.
Binance-FTX Deal and the Alleged Fraud
In 2019, Binance purchased a stake in FTX, but by July 2021, Binance agreed to sell its holdings back to FTX. This sale involved Binance’s 20% stake in FTX’s international business and 18.4% in its U.S. operations, reportedly valued at around $1.76 billion. The buyback was financed using FTX-branded and Binance-branded tokens, facilitated by Alameda Research.
However, FTX claims that Alameda was already insolvent when this transaction took place, meaning it did not have the financial capacity to fund the deal. FTX’s estate argues that this made the buyback improper and that Binance, including its executives, benefited from this transaction at the expense of FTX’s creditors.
FTX’s lawsuit is not only aiming to recover the $1.76 billion but also seeks additional compensatory and punitive damages. “The Plaintiffs seek to recover, for the benefit of FTX’s creditors, at least $1.76 billion that was fraudulently transferred to Binance and its executives,” said the filing.
In response, Binance has denied the allegations, calling the claims “meritless” and affirming its intent to defend itself vigorously. Zhao has yet to publicly address the lawsuit.
The Tense Relationship Between FTX and Binance
This lawsuit highlights the strained relationship between FTX and Binance, two of the largest crypto exchanges in the world. FTX was once a dominant force in the crypto market before its sudden collapse in late 2022. Binance, led by Zhao, initially offered to buy FTX’s non-U.S. assets in a rescue deal. However, Binance withdrew from the negotiations, contributing to FTX’s eventual downfall.
Sam Bankman-Fried, the founder of FTX, was later convicted of fraud after misappropriating customer funds to make personal investments and donations, and is currently serving a 25-year prison sentence. The U.S. Securities and Exchange Commission (SEC) has called FTX’s operations fraudulent from the outset, further complicating the legal landscape for those involved.
Zhao’s Tweets and the Collapse of FTX
The lawsuit also brings attention to Zhao’s tweets in November 2022, which FTX alleges played a direct role in triggering the exchange’s collapse. On November 6, Zhao tweeted that Binance would liquidate $529 million worth of FTX tokens. FTX claims this announcement caused a rush of withdrawals from its platform, exposing a liquidity crisis that led to its bankruptcy.
FTX argues that Zhao’s tweets were intentionally misleading, designed to destabilize FTX and accelerate its demise. The lawsuit accuses him of maliciously spreading false information, further damaging FTX’s already precarious financial situation and exacerbating the losses for FTX’s creditors.
A Binance spokesperson, however, maintained that the company will “vigorously defend” itself against the allegations.
FTX’s Broader Efforts to Recover Funds for Creditors
This lawsuit is part of a broader effort by FTX’s estate to recover funds for its creditors. Over 20 lawsuits have been filed, targeting various parties in a bid to reclaim billions lost in the collapse. Recently, Alameda Research filed a lawsuit against Waves blockchain founder Aleksandr Ivanov to recover $90 million linked to a liquidity platform.
Additionally, the FTX estate has received court approval for a plan to repay $16 billion to creditors. However, the repayment process is ongoing, and many creditors are still awaiting compensation.
