The FTX bankruptcy estate is actively pursuing legal actions as part of its ongoing bankruptcy proceedings, which now include a significant lawsuit against the cryptocurrency exchange Binance and its former CEO Changpeng “CZ” Zhao, seeking to recover $1.8 billion. This lawsuit was filed on November 10, according to court documents.
The complaint alleges that Binance and its executives, including Zhao, participated in a fraudulent transaction involving $1.76 billion worth of cryptocurrencies transferred from FTX as part of a share repurchase deal in July 2021. Sam Bankman-Fried, co-founder of FTX who is currently serving a 25-year prison sentence, orchestrated the deal involving significant stakes in both FTX’s international and U.S.-based entities.
The estate claims that this transaction was fraudulent because FTX and its sister company, Alameda Research, were likely insolvent at the time, and possibly since their inception. This insolvency made the share repurchase from Binance illegitimate under financial regulations.
Alleged Motives Behind Binance’s Actions
The lawsuit further accuses Zhao of attempting to undermine FTX to protect Binance’s market dominance. It references a purported “campaign to destroy FTX” which included spreading fear, uncertainty, and doubt (FUD) about FTX in 2022. Evidence presented by an investor during a U.S. Senate hearing suggested a bitter rivalry between Zhao and Bankman-Fried, with allegations that Zhao played a significant role in FTX’s downfall.
Additionally, the plaintiffs claim that Binance’s liquidation of its holdings in FTX’s native token (FTT) just before FTX’s collapse in November 2022 was part of a deliberate strategy to damage FTX and enhance Binance’s position in the market. This action was contrary to Zhao’s public statements that aimed to minimize market disruption.
The filing also touches on the controversial period when Binance expressed interest in acquiring FTX amid its liquidity crisis in 2022. According to the estate, Binance and Zhao never intended to follow through with this acquisition. Instead, their actions during this period were aimed at thwarting FTX’s attempts to secure alternative financing and to mislead stakeholders about Binance’s due diligence efforts on FTX’s financial health.
This lawsuit is part of a series of legal actions undertaken by the FTX bankruptcy estate to recover funds. The estate has also filed a lawsuit against SkyBridge Capital and its founder Anthony Scaramucci, seeking over $100 million related to sponsorships and investments made by Bankman-Fried. Another lawsuit was filed against the crypto exchange KuCoin by FTX’s sister firm Alameda Research, aiming to reclaim more than $50 million in assets.
A Winding Path of Recovery
The FTX bankruptcy estate’s aggressive legal strategy underscores a complex journey of recovery and restitution. By targeting a major player like Binance, the estate not only seeks substantial financial redress but also aims to set a precedent in the crypto industry for dealing with insolvency and alleged corporate sabotage. This legal battle marks a critical pivot point in cryptocurrency regulation and corporate accountability, highlighting the intricate dance between innovation and the need for robust oversight to protect stakeholders. As these cases unfold, they will likely shape the contours of cryptocurrency regulation and market behavior for years to come, hopefully steering the industry towards greater transparency and stability.
Featured image credit: fabrikasimf via Freepik
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