FTX Sues Binance and CEO Changpeng Zhao for $1.8B Over Alleged Fraud

FTX filed a $1.8 billion lawsuit against Binance Holdings Ltd. and its former CEO Changpeng Zhao (CZ), per Bloomberg. The lawsuit, filed by FTX’s bankruptcy estate, aims to recover funds that it alleges were fraudulently transferred by FTX’s own co-founder, Sam Bankman-Fried (SBF), as part of a share repurchase deal. 

Background: The Share Repurchase Deal 

FTX’s lawsuit claims that Binance, CZ, and other Binance executives received $1.76 billion in FTX tokens (FTT) and Binance-branded coins (BNB and BUSD) as part of a July 2021 share repurchase deal. In this transaction, Binance reportedly sold back its stakes in FTX's international and US-based entities, around 20% and 18.4%, respectively.

FTX’s estate argues that the funds used to buy out Binance’s shares were misappropriated, possibly from FTX customers and investors. The legal filing claims that FTX and Alameda Research, its sister company, were insolvent even before the deal, making the transaction a “fraudulent transfer.” 

FTX and its sister trading house Alameda Research “may have been insolvent from inception and certainly were balance-sheet insolvent by early 2021,” the estate said in the filing.

 

This revelation adds a new dimension to the case, suggesting that FTX was facing serious financial instability long before its collapse in November 2022.

Allegations Against CZ and Binance’s Role

The FTX estate alleges that CZ’s actions were part of a broader scheme to destabilize FTX. One of the lawsuit’s focal points is a November 6, 2022, tweet by CZ announcing that Binance intended to sell its FTT holdings, worth approximately $529 million at the time. This announcement reportedly caused mass withdrawals and a liquidity crisis at FTX, triggering the exchange’s eventual collapse.

FTX’s estate claims that CZ’s tweet was a calculated move to harm FTX, labeling it as “false, misleading, and fraudulent.” According to the filing, CZ’s announcement was intended to damage FTX’s reputation and drive users away from the platform. 

The estate also points to other tweets from CZ and Binance that it argues were intended to mislead FTX’s customers and destabilize the market.

This lawsuit is part of a broader legal strategy by FTX’s estate to recover funds from various parties associated with FTX’s bankruptcy. Other defendants in FTX’s recovery efforts include prominent figures and companies in the crypto industry, such as former White House communications director Anthony Scaramucci, digital asset exchange Crypto(.)com, and advocacy group FWD(.)us, founded by Facebook’s Mark Zuckerberg.

Lawsuit Against Waves Founder 

In another legal move, FTX’s sister company Alameda Research has filed a separate lawsuit against Aleksandr Ivanov, the founder of the blockchain platform Waves on Nov. 9. Alameda is seeking to recover at least $90 million in assets allegedly tied to Vires.Finance, a liquidity platform on the Waves blockchain.

According to Alameda’s filing, the company deposited $80 million in USDT and USDC on Vires(.)Finance, which was later converted to around $90 million in Waves’ stablecoin USDN. 

Alameda claims that Ivanov artificially inflated the value of Waves and siphoned funds from Vires. Efforts to recover these funds have reportedly been met with minimal cooperation from Ivanov, further complicating the case.