In its latest legal maneuver, the FTX bankruptcy estate has filed a lawsuit against cryptocurrency exchange Binance, targeting the recovery of $1.8 billion. The complaint, filed on November 10, accuses Binance, its former CEO Changpeng “CZ” Zhao, and other Binance executives of engaging in fraudulent transactions with FTX.

The lawsuit is part of a larger effort by the FTX estate to reclaim assets in the wake of FTX’s collapse, which left billions in liabilities. Notably, the estate argues that Binance received at least $1.76 billion in what it describes as a “fraudulent transfer” related to a July 2021 stock repurchase deal between Binance and FTX.

Allegations of Fraudulent Transfers Between FTX and Binance

The complaint claims that in 2021, FTX’s co-founder, Sam Bankman-Fried, repurchased shares of FTX International and FTX US from Binance for $1.76 billion. This payment was reportedly made using a mix of FTX’s native token, FTT, and Binance’s BNB and BUSD tokens. FTX’s estate argues that the transaction was fraudulent, as both FTX and Alameda Research were allegedly insolvent by early 2021. According to the estate, this insolvency made the share repurchase financially unsound and, ultimately, a means to funnel money to Binance at the expense of FTX creditors.

Bankman-Fried, now serving a 25-year prison sentence, had purchased approximately 20% of FTX International and 18.4% of FTX US from Binance, marking a significant financial transaction in FTX’s history. The lawsuit highlights that the payment came at a time when FTX and its sister company, Alameda Research, were likely struggling to cover liabilities, adding to suspicions around the legality of the transfer.

Allegations of a “Campaign to Destroy FTX”

One of the more explosive claims in the lawsuit is that Binance’s Zhao allegedly orchestrated a calculated strategy to harm FTX’s reputation and business. The filing alleges that Binance engaged in a “months-long coordinated FUD [fear, uncertainty, and doubt] campaign” against FTX in 2022, aiming to weaken its competitor and improve Binance’s standing in the crypto market.

The estate points to Binance’s massive liquidation of FTT tokens in November 2022 as part of this campaign. Zhao’s decision to publicly announce the FTT liquidation reportedly caused panic in the market, contributing to the steep decline in FTT’s value and triggering a liquidity crisis for FTX. At the time, Zhao claimed that Binance was offloading FTT “to minimize market impact,” but the estate argues that this was misleading, asserting that the liquidation was carried out in a way to maximize harm to FTX.

The complaint also includes statements from an investor close to Bankman-Fried, who testified in a U.S. Senate hearing that Zhao and Bankman-Fried “were at war with each other, and one put the other out of business, intentionally.”

Misleading Statements and Unfulfilled Acquisition Intent

Adding to the estate’s claims, the lawsuit accuses Zhao of making misleading statements about Binance’s intentions to acquire FTX in the midst of FTX’s liquidity crisis. When Binance initially offered to acquire FTX during its financial collapse, Zhao announced a letter of intent to conduct due diligence on FTX’s finances. However, shortly thereafter, Binance pulled out of the deal, citing concerns over FTX’s financial stability.

The FTX estate now contends that this acquisition offer was a “false and misleading” maneuver meant to delay FTX from finding alternative financing sources. According to the complaint, Binance’s statements gave FTX’s creditors the impression that Binance would provide support, which ultimately resulted in further harm to FTX and its stakeholders.

Expanding Legal Actions by the FTX Estate

This lawsuit against Binance is the latest in a series of legal actions taken by the FTX estate to recoup funds. Just a day prior, on November 9, the estate filed a complaint against SkyBridge Capital and its founder, Anthony Scaramucci, seeking over $100 million tied to sponsorship and investment deals initiated by Bankman-Fried. In October, FTX’s sister company, Alameda Research, filed a lawsuit against KuCoin to recover more than $50 million in locked assets.

The bankruptcy estate’s legal strategy reflects a broad and aggressive approach, targeting several high-profile entities to maximize asset recovery for FTX creditors. These actions underscore the ongoing and extensive fallout from FTX’s collapse, which has left creditors, former investors, and industry players tangled in a web of legal and financial repercussions.

What’s Next?

As this lawsuit progresses, it raises questions about the broader impact on Binance and the crypto industry as a whole. The outcome could influence market dynamics and set legal precedents for how exchanges and other crypto companies engage in transactions with one another. For Binance, this is a significant legal challenge that adds to its recent regulatory scrutiny and could potentially affect its standing in the global crypto market.

Ultimately, the FTX estate’s claims underscore the intricate and often contentious relationships within the cryptocurrency industry. As the legal proceedings unfold, the crypto world will be watching closely to see how this case, and others like it, shape the future of asset recovery and accountability in the industry.