The collapsed cryptocurrency exchange FTX has initiated legal proceedings against Binance and its former CEO, Changpeng Zhao, claiming that approximately $1.8 billion was “fraudulently transferred” to Binance and its executives by FTX management. The lawsuit centers on a share repurchase agreement related to Binance’s divestment of its stake in FTX, which it initially acquired in 2019.
According to the court filing submitted in Delaware, the allegations stem from a transaction in July 2021, during which Binance sold back its 20% equity stake in FTX and an 18.4% stake in FTX’s U.S. arm, West Realm Shires. The lawsuit contends that Alameda Research, FTX’s trading firm, funded this repurchase using tokens valued at $1.76 billion at the time. However, it asserts that Alameda was insolvent when the transaction occurred and therefore should not have been able to finance the deal.
“Through this lawsuit, the Plaintiffs aim to recover at least $1.76 billion that was fraudulently transferred to Binance and its executives at the expense of FTX’s creditors,” stated the administrators for the FTX estate in their filing. They are also seeking compensatory and punitive damages, with amounts to be determined during the trial.
In response, a spokesperson for Binance labeled the claims as “meritless” and stated that they would vigorously defend against them. Zhao, often referred to as “CZ,” has not publicly commented on the lawsuit.
This legal action is part of an ongoing conflict between FTX and Binance. Before its collapse in late 2022, FTX was one of the largest cryptocurrency exchanges globally. In November 2022, Binance initially considered acquiring FTX’s non-U.S. operations but ultimately withdrew its offer amid rising concerns about FTX’s financial stability.
FTX founder Sam Bankman-Fried was sentenced to 25 years in prison earlier this year for misappropriating approximately $8 billion from customers. He has since appealed his conviction. Meanwhile, Zhao faced a four-month prison sentence after pleading guilty to violating U.S. money laundering laws linked to Binance’s operations.
The lawsuit is among several actions taken by the FTX estate as it attempts to recover assets amid bankruptcy proceedings. Other lawsuits have targeted various entities, including Crypto.com and former White House communications officer Anthony Scaramucci.
Key Points from the Lawsuit
- Allegations of Fraudulent Transfer: The lawsuit claims that Alameda Research funded a share buyback while insolvent.
- Seeking Recovery for Creditors: The suit aims to recover funds for FTX’s creditors who lost billions during the exchange’s collapse.
- Response from Binance: Binance has denied all allegations and plans to defend itself vigorously.
- Ongoing Legal Battles: This lawsuit is part of a broader effort by the FTX estate to reclaim assets lost during its bankruptcy.
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