The collapse of FTX has been a historic one for the crypto industry, but the company isn’t done with reminding us that it still has a stake in the game. FTX is suing Binance and its former CEO Changpeng Zhao over what it considers to be a fraudulent transaction that FTX should not have been allowed to make.
FTX’s lawsuit against Binance is being led by the company’s estate, and the case was filed in a court in Delaware. The crypto company aims to recover $1.76 billion, which it alleges was fraudulently transferred to Binance executives in July 2021, under the guise of a share repurchase deal with FTX co-founder Sam Bankman-Fried.
FTX Sues Binance Alleging Fraudulent Transactions with FTX Co-founder
FTX’s co-founder is now serving a 25-year sentence over allegations of fraud and misappropriation of customer funds, but the company’s estate is still working to recover some of the money that was unlawfully distributed by the former CEO. The FTX estate plans to accumulate $16 billion in funds to repay customers who were affected by the FTX debacle, however, they will first have to find the money.
At the heart of the FTX-Binance lawsuit is the company’s claim that back in July 2021, Binance sold its stake in the company back to Bankman-Fried, however, the money that was used to pay for the shares was already pulling heavily from the company.
Binance reportedly sold its 20% stake in the platform and 18.4% stake in its U.S.-based unit to Bankman-Fried. However, the deal was a murky one as FTX and its sister company Alameda were already insolvent at the time and couldn’t lawfully pay for the transaction.
FTX’s Alameda Research division funded the repurchase of the shares using tokens that had a $1.76 billion market value back then, however, the company could not have afforded the transaction during that period and should not have been allowed to proceed with the deal.
Binance’s Legal Issue Also Extends to Tweets
FTX’s plans to sue Binance are also said to stem from the fact that former Binance CEO Changpeng Zhao released “a series of false, misleading, and fraudulent tweets that were maliciously calculated to destroy his rival FTX.”
The former CEO had openly stated the company’s intention to liquidate $529 million worth of FTX tokens and as the head of such a renowned organization, the tweet was said to have triggered other customers to do the same. The panicked withdrawal sealed the deal on FTX’s collapse.
At the time of FTX’s breakdown, Binance had also indicated that it would buy out the company’s non-U.S. unit, which would have given FTX more funds to work with, but Binance then withdrew its offer.
The direct correlation between the tweet and the resulting response from the customers may be hard to prove considering there was already widespread uncertainty about FTX and its ability to continue staying in business, but the legal proceedings will reveal just how much of a claim FTX has in this conflict with Binance.
What Does FTX Expect from This Lawsuit?
FTX’s allegations of fraud against Binance aim to prove that the transaction between the company and Binance and its executives was a fraudulent one. As a result, the crypto company hopes to recover at least $1.76 billion that was fraudulently transferred in the share repurchase deal. In addition to this, FTX is exploring the possibility of securing additional compensation for punitive damages.
Former CEO Zhao has not provided a comment on this legal filing but a spokesperson for Binance told Reuters, “The claims are meritless, and we will vigorously defend ourselves.” Zhao has been met with his own accusations of money laundering and breaching U.S. economic sanctions. FTX’s 1.8 billion lawsuit should help the company get a headstart on paying back its customers.
Fortunately for FTX, Binance is only one part of the puzzle. The company has also filed a lawsuit against other parties like Anthony Scaramucci and his SkyBridge Capital hedge fund, Crypto.com, lobbying group Fwd.us, and Waves blockchain founder Aleksandr Ivanov. Over the next few months, we’ll get a clearer picture of whether FTX has any legal claims on the funds that its leaders distributed over the last two years.
