FTX Estate Sues Binance and Changpeng Zhao Over $1.76 Billion Fraudulent Share Deal
The estate of the defunct cryptocurrency exchange FTX has initiated a lawsuit against Binance and its former CEO Changpeng Zhao, seeking to recover at least $1.76 billion over allegations of a “fraudulent” share transaction. The lawsuit, filed in a Delaware court on Sunday, targets a 2021 deal in which Binance, Zhao, and other parties sold their stakes in FTX and its U.S. subsidiary, West Realm Shires, back to FTX.
According to the FTX estate, the repurchase was financed by FTX’s trading arm, Alameda Research, using a mix of FTX and Binance’s native tokens, as well as Binance’s dollar-pegged stablecoin. The filing alleges that Alameda was insolvent at the time and lacked the financial capability to fund the transaction, branding the deal a “constructive fraudulent transfer.” This transaction was reportedly authorized by FTX co-founder Sam Bankman-Fried, who is currently serving a 25-year prison sentence for fraud.
Binance has refuted the allegations, calling them “meritless” in an emailed statement, adding, “We will vigorously defend ourselves.”
Escalation of Crypto Industry Tensions
This legal action underscores the growing animosity between two of the most prominent names in the cryptocurrency sector. The collapse of FTX in late 2022 caused shockwaves throughout the industry, eroding trust in centralized exchanges and leading to significant market volatility.
Once valued at $32 billion, FTX declared bankruptcy after failing to meet a surge in customer withdrawal demands. The fallout culminated in November 2022 when Bankman-Fried was convicted on seven criminal fraud charges related to the exchange’s collapse and misuse of customer funds. Around the same time, Zhao admitted to violations of the Bank Secrecy Act, including failing to implement anti-money laundering measures and breaching U.S. sanctions.
Lawsuit Highlights Alleged Market Manipulation
Beyond financial recovery, the FTX estate’s lawsuit accuses Zhao of triggering the exchange’s downfall through a series of “false, misleading, and fraudulent tweets.” One of the cited tweets, posted on November 6, 2022, referred to FTX’s token FTT:
“Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce.”
Another tweet allegedly contributed to market panic:
“As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books.”
These posts reportedly led to a surge in withdrawals from FTX, exacerbating the exchange’s liquidity crisis and eventual collapse.
The lawsuit adds another chapter to the legal and reputational battles engulfing both FTX and Binance, highlighting the volatile and contentious nature of the cryptocurrency industry.
