The bankruptcy administrators of FTX, the collapsed cryptocurrency exchange, have filed a lawsuit against Binance and its former CEO, Zhao Changpeng, seeking $1.8 billion in compensation. The case alleges that FTX management fraudulently transferred the funds to Binance and its executives, adding another twist to the ongoing legal battles in the crypto world.
Allegations of Fraudulent Transactions
The lawsuit, filed in the US state of Delaware, centres on Binance’s sale of its stake in FTX in 2021. Binance had acquired a stake in FTX in 2019, which it later sold back to FTX for a reported $1.76 billion in July 2021. According to the legal filing, this transaction was funded directly by FTX’s trading arm, Alameda Research, using tokens that were allegedly overvalued.
The administrators argue that Alameda was insolvent at the time and lacked the financial capability to execute the transaction. They claim that the deal should never have been permitted to proceed, describing it as detrimental to FTX’s 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, as well as compensatory and punitive damages to be determined at trial,” the filing states.
Binance Responds
A spokesperson for Binance dismissed the claims as “meritless” and vowed to “vigorously defend” the company against the accusations. Zhao Changpeng, commonly known as CZ, has yet to comment on the lawsuit.
This legal dispute is the latest chapter in the contentious relationship between the two cryptocurrency giants. FTX and Binance, once collaborators, have been at odds since FTX’s dramatic collapse in late 2022.
A Turbulent History
FTX, once among the largest cryptocurrency platforms globally, filed for bankruptcy after a liquidity crisis in November 2022. Rival Binance initially offered to acquire FTX’s non-US operations in a rescue bid but withdrew the offer within days, citing concerns over financial irregularities.
Sam Bankman-Fried, the founder of FTX, was sentenced earlier this year to 25 years in prison for defrauding customers of $8 billion. Zhao also faced legal consequences, receiving a four-month prison sentence for violating US anti-money laundering laws.
Ongoing Fallout
This lawsuit underscores the growing scrutiny surrounding the cryptocurrency industry and its major players. As the case unfolds, it is likely to reveal further details about the financial dealings between FTX and Binance, keeping the spotlight on the legal and regulatory challenges faced by the sector.
