FTX Sues Binance Over Alleged $1.8bn Fraud

Bankrupt crypto exchange FTX has filed a lawsuit against Binance and its former chief executive Zhao Changpeng seeking to recover $1.8 billion (£1.4bn) it alleges was fraudulently transferred by former FTX head Sam Bankman-Fried.

The funds were transferred to Binance, Zhao and other Binance executives in July 2021 as part of a share repurchase agreement with Bankman-Fried, under which the firm repurchased about 20 percent of its international unit and 18.4 percent of its US entity, according to a new legal filing from FTX.

Bankman-Fried paid for the stock repurchase using FTX’s token FTT, along with Binance tokens BND and BUSD, valued in total at $1.76bn at the time, the filing said.

FTX and sister trading firm Alameda Research “may have been insolvent from inception and certainly were balance-sheet insolvent by early 2021”, meaning that they could not afford the deal and the transfer was made fraudulently, FTX said in the filing.

‘Malicious’ tweets

FTX also accused Zhao, known as CZ, of a series of “false, misleading, and fraudulent tweets” shortly before FTX’s collapse that were “maliciously calculated to destroy his rival”.

A 6 November tweet by Zhao stated that Binance intended to sell its FTT tokens, worth about $529m at the time, causing a surge in withdrawals from FTX.

Binance said in a statement that the claims were meritless and that it would “vigorously” defend itself.

Under bankruptcy administrators FTX has filed numerous lawsuits against former investors, affiliates and clients, including former White House communications officer Anthony Scaramucci, digital asset exchange Crypto.com and political groups such as Mark Zuckerberg-founded FWD.US.

FTX was formerly one of the biggest crypto trading firms in the world, and a major rival to market leader Binance.

Crypto collapse

FTX collapsed into Chapter 11 bankruptcy protection a few weeks after the deal, in November 2022, when a multi-billion dollar hole was found in its balance sheet amid reports of financial impropriety.

Bankman-Fried is currently serving a 25-year prison sentence, following sentencing in March of this year, for stealing $8bn from customers. He has appealed the sentence.

Zhao himself served a four-month prison sentence in the US this year after pleading guilty to failure to effectively enforce money-laundering regulations.