FTX Sues Binance Over Alleged $1.8 Billion Fraudulent Transfers

In a fresh chapter of the cryptocurrency saga, the collapsed crypto exchange FTX has filed a lawsuit against Binance and its former CEO, Changpeng Zhao, alleging that approximately $1.8 billion was “fraudulently transferred” from FTX to Binance. According to Reuters, the lawsuit, filed in Delaware, claims that this substantial transfer was orchestrated by FTX management, benefiting Binance and its executives at the expense of FTX’s creditors.

The legal dispute centers on Binance’s exit from its investment in FTX. Binance, under Zhao’s leadership, had invested in FTX back in 2019, only to negotiate an exit in July 2021. Per Reuters, the lawsuit asserts that FTX’s sister trading firm, Alameda Research, funded the buyout of Binance’s shares using crypto tokens then valued at $1.76 billion. Alameda, however, was allegedly insolvent at the time, meaning it lacked the financial stability to sustain such a transaction. The filing argues that the transfer should have been blocked given Alameda’s insolvency, suggesting the deal was unsustainable and damaging to FTX’s finances.

The lawsuit, filed by administrators representing the FTX estate, aims to reclaim at least $1.76 billion on behalf of FTX’s creditors and seeks further compensatory and punitive damages. “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,” stated the estate’s administrators in the court filing, as reported by Reuters.

Related: NYDFS Bolsters Crypto Oversight with Dubai Regulator Veteran

A Binance spokesperson has dismissed the allegations as “meritless,” indicating the company intends to “vigorously defend” itself. Zhao, often referred to as “CZ” in the crypto community, has not yet provided a statement.

This lawsuit represents another chapter in the longstanding rivalry between FTX and Binance. FTX, once a major player in the global cryptocurrency landscape, experienced a dramatic collapse in November 2022. In a bid to save the floundering company, Binance initially considered acquiring FTX’s non-U.S. assets but ultimately withdrew from the deal. The decision left FTX in turmoil, ultimately leading to its bankruptcy.

The fallout from FTX’s collapse has led to significant legal consequences for its founder, Sam Bankman-Fried. In March of this year, he received a 25-year prison sentence for misappropriating customer funds totaling $8 billion; he has since appealed this conviction. Zhao, meanwhile, faced legal repercussions of his own, having been sentenced to four months in prison after pleading guilty to money laundering charges in connection with Binance, the world’s largest crypto exchange by volume.

This latest lawsuit highlights the ongoing volatility and contentious nature of the cryptocurrency sector, where major firms continue to clash over transactions, accusations of fraud, and financial mismanagement.

Source: Reuters