Malaya Ruiz
The estate of the collapsed FTX crypto exchange is pursuing legal action against Binance and its former CEO, Changpeng Zhao, or CZ, in an effort to recover $1.76 billion.
In the filing, FTX contends that these funds were fraudulently funneled to Binance executives in July 2021 as part of a shares repurchase deal with co-founder Sam Bankman-Fried, highlighting the lingering repercussions of the exchange’s failure.
The lawsuit states that Binance sold back its 20% interest in FTX’s international division and 18.4% in its U.S. division. Sam Bankman-Fried financed this deal using a mix of cryptocurrencies from both exchanges. The FTX estate contends that this share repurchase was unlawful, as both FTX and Alameda were already insolvent due to extensive fraud perpetrated by Bankman-Fried and other executives.
Besides seeking fund recovery, the lawsuit also accuses CZ of issuing “false and misleading” posts on X in November 2022. It suggests this was a deliberate tactic to provoke a run on FTX, thereby harming FTX as a competitor and enhancing Binance’s market standing.
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“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 states.
Allegations of Sabotage in a Bitter Crypto Rivalry
According to the lawsuit, after CZ sold his interests in FTX, he aimed to undermine the competitor. It argues that his statements caused significant damage to the value that FTX stakeholders could have reclaimed.
It also listed details of when FTX management started noticing that Binance was orchestrating a “months-long coordinated FUD [fear, uncertainty, and doubt] campaign against FTX” in the summer of 2022. This was allegedly preceded by a highly publicized conflict between CZ and Bankman-Fried, which stemmed in part from Bankman-Fried’s public comments suggesting that Binance was uncooperative with regulators, leading FTX to distance itself from the exchange.
However, these accusations failed to strike a chord with the public, with a number of users describing FTX as a “cancer” in the crypto space while urging a halt to blaming Binance for its downfall.
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Meanwhile, Binance has rejected the accusations, stating in an email to CNBC, “The claims are meritless, and we will vigorously defend ourselves.”
The lawsuit is among several that FTX has initiated against its previous investors, partners, and clients in the bankruptcy court located in Delaware.
FTX was once a $32-billion giant but collapsed into bankruptcy due to overwhelming customer withdrawal requests. This led to a significant drop in the crypto markets. The worst of the market fallout occurred in November of last year. Bankman-Fried was convicted of seven counts of criminal fraud linked to the exchange’s bankruptcy and the misappropriation of customer funds.
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MALAYA RUIZ
Malaya is dedicated to helping individuals share meaningful narratives about crypto, blockchain, and future tech. Her extensive experience in editing, copywriting, and publishing gives her a deep understanding of the craft of storytelling and collaboration, which she channels through Shiba Inu's official publications. Malaya owns two dogs and therefore has a special admiration for the Shiba Inu breed.
