In a significant escalation of its post-collapse efforts, FTX has filed a lawsuit against crypto exchange Binance and its former CEO, Changpeng Zhao, seeking to recover nearly $1.8 billion in a move that could reveal troubling truths about the state of the cryptocurrency industry.
The lawsuit, filed Sunday in a Delaware court, alleges that Binance’s 2021 share repurchase deal with FTX was fraudulent, marking the latest chapter in the ongoing fallout from FTX’s shocking bankruptcy.
The core of FTX’s claim revolves around a deal that saw Binance, Zhao, and others sell their equity stake in FTX—20% of its international business and 18.4% of its US-based entity, West Realm Shires—back to the company. FTX asserts that this repurchase was funded by FTX’s sister company, Alameda Research, using a combination of FTX’s own exchange tokens (FTT) and Binance’s BNB and BUSD stablecoins. According to the suit, Alameda was already insolvent at the time of the transaction, and the deal was a “constructive fraudulent transfer,” designed to conceal FTX’s financial instability while benefitting Binance.
“Alameda was insolvent at the time of the share repurchase and could not afford to fund the transaction,” the lawsuit claims.
Binance and its executives were accused of playing a central role in orchestrating a deal that ultimately contributed to FTX’s collapse.
The 2021 transaction—which saw Binance walk away with $1.76 billion in assets—was originally heralded as a significant shift in the crypto space. However, FTX’s legal team now argues that the deal was not only financially unsound but intentionally designed to mislead both investors and regulators about the stability of FTX’s operations.
Binance, for its part, vehemently denies the allegations. A spokesperson for the company called the claims “meritless” and promised to “vigorously defend” the firm in court. Zhao, who has largely remained silent throughout the aftermath of FTX’s bankruptcy, has yet to comment publicly on the specifics of the lawsuit.
Beyond the financial transactions, the lawsuit also accuses Zhao of exacerbating the situation by using his platform to trigger a panic among investors. In particular, FTX points to a series of tweets by Zhao in November 2022, in which he announced Binance’s decision to liquidate its holdings of FTX’s native token, FTT. This move, FTX claims, set off a massive wave of withdrawals from the exchange and ultimately led to its collapse.
“Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce,” Zhao’s tweet on Nov. 6, 2022, read.
The announcement, made just days before FTX’s implosion, sent shockwaves through the crypto community, triggering a run on the exchange and eventually contributing to its bankruptcy.
FTX’s legal team believes that these actions were not just part of a standard market strategy but rather a deliberate effort to harm its competition and bolster Binance’s market dominance. By sparking a panic in FTX’s customer base, the lawsuit suggests that Zhao’s actions were part of a calculated strategy to drive FTX into insolvency.
The $1.8 billion lawsuit is part of a larger set of legal maneuvers following FTX’s high-profile collapse. The exchange, once valued at $32 billion, spiraled into bankruptcy in late 2022, when it became clear that it could not meet a massive wave of customer withdrawal requests. The aftermath of FTX’s failure has had far-reaching effects on the entire crypto industry, triggering regulatory scrutiny and casting doubt on the viability of major crypto exchanges.
As the legal battles unfold, the central question remains whether Binance’s actions were truly malicious or if they were part of the chaotic, highly competitive environment of the cryptocurrency world. While Binance insists it acted within its rights, the lawsuit suggests that more was at play, with accusations of market manipulation and financial mismanagement hanging in the balance.
For many in the crypto industry, the FTX saga is not just about one failed exchange but a warning sign of the larger risks lurking in an unregulated market. The allegations against Binance highlight the growing need for clearer regulations and more stringent oversight, especially as the crypto space continues to attract billions of dollars in investment and scrutiny.
In the end, the outcome of this lawsuit could have profound implications for the future of cryptocurrency exchanges and the broader market. If FTX’s claims are proven, it could shake the foundations of an industry that has long operated in the shadows of traditional financial regulations.
