FTX targets Binance and CZ in $1.76bn fraud suit

FTX has filed a lawsuit against Binance Holdings and the company’s former CEO, Changpeng "CZ" Zhao, seeking $1.76 billion in damages.

The lawsuit, filed on Sunday in a Delaware court by FTX’s attorneys, alleges that Binance and CZ engaged in a fraudulent share repurchase deal with FTX and its founder, Sam Bankman-Fried. In a share repurchase, a company buys back ownership shares from previous investors.

Here, FTX claims that Bankman-Fried paid Binance $1.76 billion in July 2021 to buy back shares that Binance owned in FTX and its US business.

According to a recent Bloomberg report, Binance and CZ received the funds through a mix of FTX’s own tokens (FTT) and Binance’s tokens, BNB and BUSD. However, FTX alleges that the transaction was fraudulent because FTX and its sister company, Alameda Research, were already insolvent, meaning they didn’t have enough assets to cover their debts, at the time of the transaction.

The lawsuit also points to tweets by CZ in the days leading up to FTX’s collapse in November 2022, alleging they were misleading and contributed to the company’s downfall. In one such tweet, CZ announced that Binance planned to sell $529 million worth of FTX’s tokens, a statement that sparked concern among investors and led to a wave of withdrawals from FTX.

FTX, founded in 2019 by entrepreneur Bankman-Fried, quickly became one of the world’s top cryptocurrency exchanges. However, its close relationship with Alameda Research raised concerns regarding transparency and financial practices. In November 2022, following revelations about its finances, FTX declared bankruptcy, leaving thousands of users and creditors unable to access their funds.

This latest lawsuit against Binance and CZ is part of FTX’s ongoing efforts to recover funds for its creditors through various legal proceedings.