FTX Bankruptcy Estate Sues Binance and Former CEO CZ for $1.8B Over Alleged Fraud

Binance Changpeng Zhao FTX

Crypto Reporter

Shalini Nagarajan

Crypto Reporter

Shalini Nagarajan

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Shalini is a crypto reporter who provides in-depth reports on daily developments and regulatory shifts in the cryptocurrency sector.

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November 11, 2024

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FTX has targeted Binance in its ongoing series of lawsuits as part of its bankruptcy proceedings aimed at maximizing asset recovery for creditors.

Most recently, on Nov. 10, FTX filed a lawsuit against the crypto exchange to reclaim nearly $1.8b that it alleges was fraudulently transferred by Sam Bankman-Fried.

In the filing, FTX claims that Binance engaged in fraudulent actions that damaged its financial standing and credibility. The lawsuit states that Binance, former CEO Changpeng “CZ” Zhao, and other executives received at least $1.76b in crypto through a fraudulent transfer from FTX.

FTX Alleges Fraudulent $1.76B Share Repurchase with Binance Funded by Customer Deposits

The transaction was a 2021 share purchase agreement that Binance made with FTX, which the latter now claims was fraudulent due to its insolvency at the time. According to legal documents, Bankman-Fried funded the repurchase using a mix of FTX’s token, FTT, and Binance’s BNB and BUSD valued at $1.76b.

Alameda allegedly used about $1b in customer deposits from FTX for the transaction, despite knowing it lacked sufficient liquidity or resources. The lawsuit claims this was a deliberate strategy to mislead the market into believing FTX and Alameda were financially stable, while both were actually insolvent.

A Binance spokesperson said that the exchange would defend itself against the “meritless” claims. Zhao didn’t return Cryptonews’ request for comment by press time.

FTX Alleges CZ’s Tweets and Withdrawn Deal Fueled Market Panic and Collapse

FTX also accused Zhao of deliberately undermining its operations by spreading false statements. These actions, it claims, triggered a bank run and blocked FTX from securing alternative financing.

On Nov. 6, Zhao’s tweet about Binance’s plan to sell its FTT holdings led to a surge of withdrawals and a bank run at FTX, the lawsuit claimed. It argued that Zhao’s actions were meant to harm FTX and disrupt its efforts to secure funding.

Binance initially agreed to a non-binding acquisition but quickly pulled out of the deal. This move intensified market panic and, according to the legal documents, ultimately led to FTX’s financial collapse.

FTX has initiated over 20 legal actions in the Delaware bankruptcy court, targeting a variety of former investors, affiliates and clients.

The lawsuits name prominent defendants, including former White House communications officer Anthony Scaramucci, the crypto exchange Crypto.com, and political advocacy groups such as FWD.US, founded by Mark Zuckerberg.