FTX Sues Binance for Alleged Fraudulent Transfer of $1.8 Billion Amid Bankruptcy Proceedings
In a new twist in the legal and financial fallout from FTX’s collapse, the bankrupt cryptocurrency firm is suing Binance and its former CEO Changpeng Zhao, accusing them of fraudulently receiving $1.8 billion through transactions allegedly orchestrated by FTX’s former management.
The lawsuit, filed in Delaware, claims that this substantial sum was wrongfully transferred from FTX to Binance and its executives, with FTX now seeking to reclaim those funds for the benefit of its creditors.
The lawsuit centers on Binance’s sale of its equity in FTX, a stake it originally acquired in 2019, back to FTX in a 2021 transaction. According to the filing, the share repurchase was facilitated by FTX’s trading division, Alameda Research, which reportedly used FTT tokens valued at $1.76 billion at the time.
The suit claims that Alameda Research was insolvent during this period, meaning it lacked the financial capacity to fund such a substantial purchase, a fact FTX’s legal team argues should have invalidated the transaction from the start.
The administrators of the FTX estate, now working on behalf of the firm’s creditors, are pushing to reclaim at least $1.76 billion in funds they believe were fraudulently funneled to Binance. They’re also seeking compensatory and punitive damages, which they hope will be established in court.
“This lawsuit aims to recover, for the benefit of FTX’s creditors, at least $1.76 billion that was fraudulently transferred to Binance and its executives at the expense of FTX creditors,” FTX administrators stated in their court filing.
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Responding to the allegations, a Binance spokesperson dismissed the claims as “meritless” and promised a vigorous defense. Attempts to reach Binance’s former CEO, Changpeng Zhao, commonly known as “CZ,” for comment have so far been unsuccessful.
This legal action intensifies an already contentious relationship between FTX and Binance, two former rivals in the cryptocurrency space. Once considered a crypto giant, FTX fell apart in late 2022 amid financial turmoil and allegations of fraud, leading it to file for bankruptcy.
In a dramatic twist, Binance initially appeared poised to rescue FTX’s non-U.S. assets as it struggled to stay afloat. However, Binance ultimately pulled back, citing concerns following a review of FTX’s finances.
In another development in FTX’s downfall, its founder, Sam Bankman-Fried, was sentenced earlier this year to 25 years in prison for allegedly misappropriating $8 billion in customer funds. He has since filed an appeal.
The FTX-Binance lawsuit marks a significant escalation in the ongoing legal battles surrounding FTX’s bankruptcy, signaling broader implications for the cryptocurrency industry. It highlights the importance of transparency and financial responsibility in a field that has seen rapid growth but is often criticized for lacking regulatory oversight.
As the case unfolds, the outcome could have major implications for FTX’s creditors, who are eager to recoup their losses, as well as for the wider cryptocurrency sector, which continues to grapple with challenges around trust, regulation, and financial accountability.