In summary
- FTX sued Binance for $1.76 billion in fraudulently transferred funds in 2021.
- The lawsuit alleges that Binance manipulated the buyback of its stake in FTX, causing its downfall.
- Sam Bankman-Fried was arrested and sentenced to 25 years in prison for fraud and embezzlement.
Two years after its bankruptcy filing, defunct Cryptocurrency exchange FTX has filed a lawsuit in Delaware Bankruptcy Court against Binance Holdings Ltd. and its former CEO Changpeng Zhao, seeking to recover at least $1.76 billion in “fraudulently transferred” funds. .
In the lawsuit filed Sunday, FTX’s bankruptcy estate alleges that “at least $1.76 billion in cryptocurrency was transferred to Binance in July 2021,” fraudulently by FTX founder Sam Bankman-Fried as part of a settlement in which FTX repurchased Binance’s shareholding.
By filing the lawsuit, FTX’s estate seeks to void the transfer and recover funds to pay creditors who suffered significant losses after the cryptocurrency exchange’s collapse.
The origins of this legal battle date back to 2019, when Binance acquired a 20% equity stake in FTX, making the two cryptocurrency giants allies at the time.
However, tensions soon escalated as FTX rapidly grew to become one of Binance’s biggest competitors, according to the filing. By mid-2021, Zhao had decided to exit his stake in FTX.
According to the lawsuit, the buyback deal was hastily arranged, with Zhao allegedly using his influence to extract billions from an already struggling FTX.
The transaction involved FTX buying back Binance’s stake, around 20% in FTX International and 18.4% in its US-based entity, using a combination of FTT tokens and Binance-branded coins (BNB and BUSD), valued at $1.76 billion at the time.
The lawsuit also argued that Zhao’s now-famous 2022 tweet, which triggered a wave of customer withdrawals from FTX, was one of a series of “false, misleading and fraudulent tweets that were maliciously calculated to destroy rival FTX,” accusing him of “reckless disregard” for FTX customers and creditors.
Caroline Ellison, former CEO of Alameda Research, testified that Alameda did not have the funds necessary to buy back the stake, with the lawsuit arguing that FTX and Alameda “may have been insolvent from the start and were certainly insolvent on a balance sheet basis by early 2021.”
According to Ellison, Alameda was forced to borrow more than $1 billion of FTX customer deposits to cover the transaction. Ellison is now serving a two-year sentence for defrauding FTX and Alameda investors.
FTX co-founder Sam Bankman-Fried reportedly dismissed their concerns about this move, insisting that the deal was crucial to maintaining market confidence.
Following the fall of FTX, Bankman-Fried resigned as CEO and was later arrested on charges of fraud, money laundering and conspiracy. In March 2024, he was sentenced to 25 years in prison after being found guilty of defrauding investors and embezzling client funds.
Binance did not immediately respond to a request for comment from Decrypt.
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