FTX Files $1.8B Lawsuit Against Binance and CZ, Accusing Fraud and Market Manipulation

FTX is ramping up its legal battle as part of its bankruptcy proceedings, filing a $1.8 billion lawsuit against Binance and its former CEO, Changpeng Zhao, alleging fraudulent activity and market manipulation that contributed to the crypto exchange’s collapse.

FTX’s Legal Move: Accusations of Fraudulent Transactions

In a dramatic turn of events, FTX has filed a lawsuit against Binance, seeking to recover $1.8 billion it claims was fraudulently transferred during a 2021 share repurchase agreement. The lawsuit, filed on November 10, alleges that Binance, along with Zhao and other company executives, received over $1.7 billion in cryptocurrency assets that were transferred fraudulently from FTX by former CEO Sam Bankman-Fried.

The core of FTX’s legal argument is that Binance’s purchase agreement for FTX shares, executed in 2021, was a ruse. The agreement allegedly took place at a time when FTX was already teetering on the brink of insolvency. Legal documents point to the transaction being funded using FTX’s own tokens, including FTT, as well as Binance’s BNB and BUSD. The total amount, which FTX now claims was part of a deliberate scheme to mislead the market, was reportedly valued at $1.76 billion.

Furthermore, FTX accuses its former trading partner, Alameda Research, of using customer deposits to fund this transaction—an act that exacerbated FTX’s dire financial situation. According to the lawsuit, about $1 billion in customer funds was used to support the repurchase of FTX shares, even though FTX and its affiliated trading firm, Alameda, had already become insolvent by that point.

A Tweet That Sparked Panic: CZ’s Role in FTX’s Collapse

The lawsuit takes a sharp turn, accusing Changpeng Zhao, better known as CZ, of deliberately contributing to FTX’s collapse by spreading misinformation. On November 6, Zhao’s tweet about Binance selling its FTT holdings triggered a wave of panic withdrawals from FTX, leading to what the lawsuit describes as a “bank run.”

FTX claims that Zhao’s public statement was a calculated move to undermine FTX’s credibility, pushing the exchange into deeper financial turmoil. In its filing, FTX argues that the resulting panic paralyzed FTX’s operations, making it impossible to secure the necessary funding to stabilize the company. This move, it says, was not just an attempt to harm FTX, but a deliberate strategy to disrupt its survival prospects in the marketplace.

Additionally, the lawsuit highlights that Binance had initially shown interest in acquiring FTX in a non-binding agreement but quickly withdrew from the deal. FTX asserts that this withdrawal intensified the already fragile market panic, leading to FTX’s ultimate collapse.

As part of the bankruptcy process, FTX has filed more than 20 legal actions in Delaware bankruptcy court against various parties, including investors, affiliates, and other related parties. These lawsuits are aimed at maximizing asset recovery for creditors and are part of an ongoing legal battle to reclaim funds lost in the wake of the crypto firm’s sudden demise.

Binance’s Response: Defending Against “Meritless” Claims

Binance, for its part, has vehemently denied the allegations. A spokesperson for the company stated that it would defend itself against what it described as “meritless” claims. As of the latest updates, Zhao has not responded to direct inquiries from Cryptonews.

The cryptocurrency exchange faces mounting scrutiny as legal actions continue to unfold in the Delaware court system. Binance’s legal team will likely be tasked with defending the company’s actions during the events leading up to FTX’s downfall, with FTX accusing the company of both fraudulent activity and inciting a collapse through its public statements and actions.

As the legal battle intensifies, both FTX and Binance remain at the center of a larger crypto market crisis that continues to shake investor confidence. The outcome of this lawsuit could have far-reaching implications for both companies and the broader cryptocurrency ecosystem.