FTX Sues Binance for $1.76 Billion

FTX filed a lawsuit against Binance and its co-founder Changpeng Zhao, targeting a recovery of $1.76 billion, alleging fraudulent fund transfers.

Allegations of Fraudulent Transfers

The lawsuit describes a transfer from July 2021, stating, "[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 claims that Binance acquired a 20% stake in FTX.com in November 2019 using over one million BNB tokens in a deal with FTX co-founder Sam Bankman-Fried, who is now imprisoned. Additionally, in 2020, Binance executives gained an 18.4% stake in WRS, the parent company of Bankman-Fried’s U.S. crypto companies.

In 2021, FTX repurchased the shares acquired by Binance for $1.76 billion, utilizing FTX’s exchange token FTT, BNB, and BUSD. However, FTX asserts that this transaction was fraudulent, as its sister company Alameda was already insolvent and could not support the repurchase. Testimony from former Alameda CEO Caroline Ellison revealed that Alameda used $1 billion of FTX's depositor capital to fund the buyback.

The filing added, "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."

Zhao's Alleged Role

FTX further accused Zhao of sending "false, misleading, and fraudulent" tweets intended to destabilize FTX, resulting in a wave of withdrawals. The filing stated, "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." This turmoil began in November 2022 when Zhao announced Binance would sell its FTT holdings, leading to significant market pressure on FTX's token.

In response, a Binance spokesperson labeled the claims as "meritless" and vowed to defend the company vigorously.

Broader Legal Issues for FTX

The FTX estate has initiated over 20 lawsuits against former executives, investors, and other entities to recover billions lost in its downfall. Notable individuals include SkyBridge Capital CEO Anthony Scaramucci, developers of Storybook Brawl, and Deltec Bank chairman Jean Chalopin, among others.

Updated to include comments from a Binance spokesperson.