The FTX bankruptcy estate continues to pursue lawsuits against cryptocurrency companies as part of its ongoing bankruptcy proceedings.
A group of firms involved in the FTX bankruptcy proceedings 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”
According to the FTX estate, the fraudulent transaction was Binance’s July 2021 repurchase deal with Sam Bankman-Fried, the FTX co-founder who is now serving a 25-year prison term.
In that transfer, Bankman-Fried sold stakes of about 20% in FTX’s international and 18.4% in its US-based entity, West Realm Shires Services, doing business as FTX US.
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.
FTX and its sister trading platform Alameda Research “may have been insolvent from inception and certainly were balance-sheet insolvent by early 2021,” the estate said in the filing. Due to the insolvency, the share repurchase deal was a fraudulent transaction, the estate alleged.
Binance’s CZ had a “campaign to destroy FTX,” the plaintiff argues
In addition to allegations that Binance received a fraudulent transaction from FTX, the plaintiffs argued that former Binance CEO CZ had a “campaign to destroy FTX” as the rival exchange allegedly threatened Binance’s dominance.
The filing mentioned that the FTX suspected that Binance was engaged in a “months-long coordinated FUD campaign against FTX” around 2022. An investor close to Bankman-Fried also testified in a US 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’s 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
Binance’s apparent liquidation of FTT was not done in a way that would “minimize the market impact,” as then-CEO CZ claimed, the filing notes. Instead, Zhao intended to maximize the market impact and cause a drop in the FTT price, harming FTX and increasing Binance’s market share, the plaintiffs argued, stating:
“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
Instead, Zhao’s public statements and the letter of intent on FTX acquisition advanced Zhao’s goal of destroying FTX by preventing FTX from seeking alternate financing and allowing Zhao to create the impression that Binance was in due diligence regarding FTX’s finances, the plaintiffs stated, adding:
“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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