- Binance faces a $1.8B lawsuit from FTX, alleging a fraudulent 2021 buyback deal involving former CEO Zhao.
- FTX claims Binance’s 2021 share repurchase deal was fraudulent due to concealed insolvency and token manipulation.
- Zhao’s tweets allegedly triggered mass FTX withdrawals, contributing to the platform’s downfall in late 2022.
In a legal tussle, FTX, the cryptocurrency exchange that has found itself in trouble recently, has sued Binance Holdings Limited and its former CEO, Zhao, in an effort to get $1.8 billion back. The complaint was filed in the Delaware bankruptcy court and alleges that Binance and Zhao conspired with exchange’s former CEO, Sam Bankman-Fried, to fraudulently acquire funds in a share buyback scheme in 2021.
Binance and its executives acquired roughly 20% of platform’s international operations and 18.4% of FTX’s US operations in July 2021, as per filiing. This was part of a share buyback agreement which saw Bankman-Fried pay Binance using FTT tokens of FTX and BNB and BUSD of Binance and the deal was worth $1.76 billion.
FTX’s Fraud Claims
FTX estate further contends that the deal was made under fraudulent conditions. They allege that platform and the associated trading firm Alameda Research were almost certainly insolvent at the time of the deal and had been struggling since at least the first half of 2021. The filing said that the repurchase agreement was “fraudulent” owing to the financial vulnerability of the exchange.
Citing FTX’s allegations, Zhao supposedly disparaged the exchange publicly before it went bankrupt. Zhao posted on Twitter on November 6, 2022, that Binance is planning to liquidate the rest of its FTT tokens worth $529 million. This led to an outpour of withdrawals from exchange, which led to the platform’s downfall. The platfrom alleges that these tweets were falsely, misleadingly, and deliberately made to damage crypto exchange.
Broader Legal Showdown
The legal controversy with Binance is one of a number of other court cases that have been brought by platfrom against former backers, collaborators and consumers. Other defendants include Anthony Scaramucci, a former White House communications director, Crypto.com a digital asset exchange, and political groups such as FWD.US, an organization supported by Mark Zuckerberg of Meta.
Similarly, Alameda Research, another firm affiliated with FTX, filed another lawsuit against Sasha Ivanov of Waves’ foundation to recover $90 million. In its lawsuit, Alameda alleges that Ivanov abused the funds after the $80m Tether (USDT) and USD Coin (USDC) were swapped for Neutrino Protocol’s USDN stablecoin. Since then, USDN has repeatedly lost its dollar peg and has been relaunched as Neutrino USD (XTN), which is almost worthless today.
