The estate of FTX has filed a lawsuit against rival firm Binance and its former CEO Changpeng Zhao in an effort to claw back nearly $1.8 billion linked to an allegedly “fraudulent” deal orchestrated by Sam Bankman-Fried.
Filed in Delaware bankruptcy court on Sunday, the lawsuit is focused on a 2021 share repurchase deal between Bankman-Fried – who is currently in prison for fraud – and key Binance executives.
Zhao and his allies sold stakes amounting to roughly 20% of FTX’s international business and an 18.4% stake in a US-based affiliate in exchange for a massive sum of cryptocurrencies valued at $1.76 billion at the time.
The now-defunct FTX’s caretakers allege the firm and its doomed sister cryptocurrency firm Alameda Research “may have been insolvent from inception and certainly were balance-sheet insolvent by early 2021” – meaning that the share repurchase deal was fundamentally fraudulent.
The lawsuit further alleges that Zhao “set out to destroy” FTX after he selling off his equity stake – in part by posting “a series of false, misleading and fraudulent tweets that were maliciously calculated” to result in the firm’s collapse.”
“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,” the lawsuit says.
Binance pushed back on the lawsuit’s allegations.
“The claims are meritless, and we will vigorously defend ourselves,” a Binance spokesperson said in a statement.
Once a high-flying cryptocurrency firm valued at $32 billion, FTX collapsed into bankruptcy in November 2022. It was later revealed that Bankman-Fried stole billions of dollars in customer funds to prop up risky bets made by Alameda.
As the lawsuit notes, FTX’s meltdown began after CoinDesk published an article revealing that Alameda Research was heavily invested in FTT – a cryptocurrency token that FTX itself issued.
The lawsuit cited multiple tweets from Zhao that were allegedly intended to drum up panic about this revelation, including a Nov. 6, 2022 post in which he described Binance’s decision to dump its own holdings in the FTT token as “just post-exit risk management.”
“Zhao’s intent was to maximize market impact and to cause a decline in the price of FTT, thereby harming FTX and increasing Binance’s market share,” the lawsuit says.
Bankman-Fried was sentenced to 25 years in prison last March for his role in FTX’s downfall.
Separately, Zhao was released from prison in September after serving a four-month sentence for violating US laws against money laundering.
Prosecutors had said that Binance, under Zhao’s leadership, had failed to report suspicious crypto transactions by terrorist groups such as Hamas and al-Qaeda. Binance agreed to pay a $4.32 billion penalty as part of the case.
Zhao has since stepped down as Binance’s CEO but remains its majority shareholder.
With Post wires