FTX filed a lawsuit against Binance and its co-founder Changpeng Zhao, aiming to recoup $1.76 billion from the world’s largest exchange as it claimed the money was fraudulently transferred.
“[FTX’s] July 2021 transfer of at least $1.76 billion worth of cryptocurrency to its equity holder Binance and certain Binance executives, in the form of a share repurchase, was a constructive fraudulent transfer,” the filing said.
The filing claimed that Binance first acquired a 20% stake in FTX.com in November 2019 with over one million BNB tokens, in a deal with now-imprisoned FTX co-founder Sam Bankman-Fried. In 2020, Binance executives further acquired an 18.4% stake in WRS, an umbrella company of Bankman-Fried’s U.S.-based crypto entities.
In 2021, the two parties negotiated a deal in which FTX bought back the shares acquired by Binance and its executives for $1.76 billion in FTX’s exchange token FTT, BNB, and BUSD, according to the filing.
The filing noted that this transaction was conducted fraudulently, as FTX’s sister company Alameda was already insolvent and unable to fund the transaction. The filing cited testimony from former Alameda CEO Caroline Ellison, who said Alameda used $1 billion of FTX’s capital from depositors to fund the repurchase.
“In large part due to such fraud, FTX Trading was also insolvent at the time of the Binance share repurchase, which closed on July 21, 2021,” the filing added.
The FTX estate further claimed that Zhao sent a series of “false, misleading, and fraudulent” tweets calculated to take down the rival exchange at the potential cost of FTX customers and creditors. “Zhao’s false tweets triggered a predictable avalanche of withdrawals at FTX – the proverbial run on the bank that Zhao knew would cause FTX to collapse,” the filing said.
In November 2022, Zhao tweeted that Binance would start selling off its FTT holdings, which triggered heavy market selling pressure on the FTX exchange token.
In response to the claims, a Binance spokesperson said — “The claims are meritless, and we will vigorously defend ourselves.”
The FTX estate has recently filed over 20 lawsuits against former executives, investors, and other entities to recoup billions of dollars lost in its collapse. Several of the noteworthy individuals include SkyBridge Capital CEO and one-time Trump administration official Anthony Scaramucci, the developers behind the game Storybook Brawl and Deltec Bank chairman Jean Chalopin, among others.
Updated to add comment from a Binance spokesperson.
Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.
© 2024 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.