• FTX’s lawsuit claims the company was insolvent in 2021, and the $1.76 billion share buyback with Binance used worthless FTT tokens.
  • FTX alleges Binance’s former CEO, CZ Zhao, harmed FTX by dumping FTT holdings and issuing misleading tweets.

Bankrupt cryptocurrency exchange FTX has filed a lawsuit against Binance and its former CEO Changpeng “CZ” Zhao, seeking to recover $1.8 billion in what it claims was a fraudulent transfer. According to FTX’s legal team, FTX was already insolvent at the time of the transaction in July 2021, and the FTT tokens used in the deal had no actual value, which they argue renders the transfer fraudulent.

The lawsuit concerns FTX’s repurchase of Binance and Zhao’s stake in FTX, initially acquired in 2019. FTX’s former CEO, Sam Bankman-Fried, orchestrated the buyback, valued at $1.76 billion, using funds from his trading firm, Alameda Research.

However, according to filings, Alameda was financially unstable. Bankman-Fried’s second-in-command, Caroline Ellison, allegedly cautioned that “we don’t really have the money for this, we’ll have to borrow from FTX to do it,” highlighting the firm’s precarious position.

FTX’s filing further alleges that Zhao attempted to harm his competitor by dumping large holdings of FTT tokens, alongside tweets that were “false, misleading, and fraudulent.” These actions, FTX asserts, damaged the company’s reputation and exacerbated its financial troubles, thereby reducing the potential recoverable assets available for creditors.

“By this lawsuit, the Plaintiffs seek to recover, for the benefit of FTX’s creditors, at least $1.76 billion that was fraudulently transferred to Binance and its executives at the FTX creditors’ expense,” the filing states.

Additionally, FTX seeks compensatory and punitive damages, to be determined at trial. Binance, however, dismissed the allegations. A spokesperson said:

“The claims are meritless, and we will vigorously defend ourselves.”

Zhao could not immediately be reached for comment.

This lawsuit adds to the ongoing legal battles between the former crypto giants. Following its November 2022 collapse, FTX’s founder Bankman-Fried received a 25-year prison sentence, while Zhao faced his own legal challenges, including a four-month sentence related to U.S. anti-money laundering violations.

Edited by Harshajit Sarmah