FTX Seeks $1.76 Billion from Binance and Changpeng Zhao, Alleging Fraudulent Share Repurchase
The FTX estate is suing Binance and former CEO Changpeng Zhao for $1.76 billion, accusing them of a “fraudulent” share buyback that fueled FTX’s collapse. The suit claims Zhao’s statements on FTT liquidation caused mass withdrawals, ultimately leading to FTX’s downfall.
November 1, 2024 – The bankruptcy estate of collapsed crypto exchange FTX has filed a lawsuit against Binance and its former CEO, Changpeng Zhao (CZ), in Delaware, aiming to recover $1.76 billion. The case, centered around a 2021 transaction, accuses Zhao and Binance of orchestrating a “fraudulent” share buyback that contributed to FTX’s eventual downfall.
Alleged “Constructive Fraud” Deal
The FTX estate claims that the buyback, in which Binance sold back its 20% stake in FTX and 18.4% in its U.S.-based entity, West Realm Shires, was funded through Alameda Research, FTX’s trading arm. The suit argues that Alameda was insolvent at the time, using company assets and Binance’s exchange tokens, alongside Binance’s stablecoin, to execute the transaction.
Labeling the repurchase as a “constructive fraudulent transfer,” FTX points to the involvement of its co-founder Sam Bankman-Fried, now serving a 25-year sentence for fraud following the exchange’s implosion. Binance, however, dismisses the claims as “meritless” and asserts its intent to “vigorously defend” against the allegations.
The Impact of Zhao’s Statements on FTX’s Collapse
The suit also highlights Zhao’s social media posts from November 2022, suggesting that his remarks on liquidating Binance’s FTX Token (FTT) holdings may have triggered FTX’s final collapse. In a post on November 6, Zhao hinted at FTT liquidation, citing “post-exit risk management” and a need to avoid further involvement with FTX, saying, “We won’t pretend to make love after divorce.” Shortly after, he announced plans to sell Binance’s FTT stake, which FTX alleges caused panic withdrawals, leading to the exchange’s eventual bankruptcy.
A Financial and Legal Fallout for the Crypto Industry
The FTX estate’s lawsuit against Binance underscores the escalating tensions in the crypto space, particularly between former industry giants. Once valued at $32 billion, FTX’s collapse sent shockwaves through the industry, leading to further scrutiny of corporate practices in the crypto sector. Zhao and Binance have also faced legal challenges, including Zhao’s recent guilty plea to violating the Bank Secrecy Act and economic sanctions laws.
Beyond recovering assets, the FTX estate’s legal pursuit highlights issues related to transparency, investor protection, and the complex dynamics that fueled the rapid rise—and even quicker fall—of one of the industry’s biggest players.