TLDR
- FTX is suing Binance and CZ for $1.76 billion over an alleged fraudulent transfer from 2021
- The dispute centers on Binance’s 2019 acquisition of a 20% stake in FTX and subsequent 2021 buyback
- Alameda Research, which was insolvent, funded the buyback using FTX customer deposits
- Sam Bankman-Fried has been sentenced to 25 years in prison for fraud
- The lawsuit claims CZ’s 2022 tweets intentionally triggered FTX’s collapse
The ongoing saga between cryptocurrency exchanges FTX and Binance has taken another turn as FTX launched a lawsuit seeking to recover $1.76 billion from Binance and its former CEO Changpeng Zhao (CZ).
The legal action, filed on November 10, 2024, focuses on transactions dating back to 2019 and 2021.
The story begins in November 2019, when Binance purchased a 20% stake in FTX, receiving over one million BNB tokens as part of the deal with Sam Bankman-Fried.
The relationship between the two exchanges deepened in February 2020, as Binance acquired an additional 18.4% stake in WRS, Bankman-Fried’s US-based umbrella company.
However, the partnership took a different direction in July 2021. Both parties agreed to a buyback arrangement where FTX would repurchase Binance’s entire stakes in both FTX and WRS.
The buyback was valued at approximately $1.76 billion, paid in a combination of FTX’s native token FTT, Binance’s BNB token, and Binance’s stablecoin BUSD.
The lawsuit’s core allegation centers on how this buyback was funded. According to court documents, the payment was processed through Alameda Research, FTX’s sister company, which was reportedly insolvent at the time of the transaction.
Caroline Ellison, who served as CEO of Alameda Research, provided testimony that sheds light on the funding source.
According to Ellison, Alameda used “approximately $1 billion of FTX Trading’s capital received from depositors” to complete the buyback transaction.
The legal filing argues that this transfer was fraudulent because Alameda Research lacked the financial means to legitimately execute such a large transaction. Instead, the company allegedly misappropriated FTX customer deposits to fund the deal.
The timing of this lawsuit follows several related legal developments in the crypto industry. Notably, Sam Bankman-Fried, FTX’s co-founder, received a 25-year prison sentence in March 2024 for defrauding customers.
Caroline Ellison, whose testimony is central to the current lawsuit, was sentenced to 24 months in prison in September for her role in FTX’s collapse.
The lawsuit also addresses events leading up to FTX’s eventual downfall in November 2022. It alleges that CZ posted “false, misleading, and fraudulent tweets” on November 6, 2022, with the deliberate intention of damaging FTX’s reputation and stability.
According to the court filing, these tweets sparked a mass withdrawal of funds from FTX – an event described as “the proverbial run on the bank.” The lawsuit contends that CZ knew these actions would lead to FTX’s collapse.
The legal action represents FTX’s efforts to recover assets that could potentially be used to repay creditors and former customers who lost funds in the exchange’s collapse. The $1.76 billion being sought represents one of the largest recovery attempts in the cryptocurrency industry’s history.
The case brings attention to the complex relationships and transactions between major players in the cryptocurrency industry. It highlights the interconnected nature of crypto enterprises and the potential risks when business relationships sour.
This legal battle adds another layer to the already complex aftermath of FTX’s collapse. The lawsuit’s outcomes could have implications for how similar transactions between cryptocurrency exchanges are handled in the future.
The case is particularly notable as it involves two of the largest names in cryptocurrency trading. Binance, under CZ’s leadership, grew to become the world’s largest cryptocurrency exchange, while FTX, before its collapse, was one of the most prominent platforms in the industry.
Current court documents indicate that the legal proceedings are in their early stages, with both parties expected to present detailed evidence regarding the nature and circumstances of the $1.76 billion transfer.
