FTX Sues Binance and Changpeng Zhao for $1.76 Billion

FTX’s lawsuit targets financial transactions made by former founder Sam Bankman-Fried with Binance before the exchange declared bankruptcy.

According to Sunil Kavuri, the representative of FTX’s largest group of creditors, the bankrupt exchange has filed a lawsuit against Binance Holdings Ltd. and former CEO Changpeng Zhao (CZ), demanding the return of $1.76 billion that they allege was fraudulently transferred by former FTX co-founder Sam Bankman-Fried (SBF).

FTX filed a $1.76bn lawsuit against Binance

Nov 21: Binance acquired 20% stake in FTX in Nov 2019 for $18.3m

Jul 21: FTX bought back stake which was a constructive fraudulent transfer as FTX was insolvent pic.twitter.com/SPpRSAYKl9

— Sunil (FTX Creditor Champion) (@sunil_trades) November 11, 2024

According to the lawsuit, FTX claims that Binance, CZ, and other Binance executives were among the causes affecting their financial situation, leading to the eventual collapse of the FTX empire.

Specifically, FTX said that Binance spent $18.3 million in November 2019 to buy a 20% stake in FTX. Then in July 2021, they were bought back by Sam Bankman-Fried and collected a total of $1.76 billion in the form of FTT, BNB and BUSD tokens.

In this transaction, Binance is said to have sold back its shares in FTX's international headquarters and US branch (FTX.US) for 20% and 18.4%, respectively.

Notably, of the amount of money that SBF used to buy back shares from Binance, about 60% (equivalent to $1 billion) was deposits in the FTX exchange from customers.

At that time, the balance sheet from "sister" platform Alameda Research showed that the FTX empire had only about $2.7 billion in financial resources, but its debt was up to $9.4 billion.

Therefore, FTX asserts that former CEO Sam Bankman-Fried's "spending" of $1.76 billion to buy back shares from Binance was the main cause of FTX's loss of liquidity, leading to its bankruptcy declaration just one year later.

FTX also accused Changpeng Zhao, CEO of Binance, of posting a series of tweets on the X platform right before FTX's collapse as a calculated move to "deliberately destroy his competitor". According to the filing, FTX alleges that CZ's tweet was intended to damage FTX's reputation and cause users to leave the platform.

The focus of the lawsuit is a tweet on November 6, 2022 by CZ stating that Binance intended to sell all of its FTT tokens, worth about $529 million at that time, which was the source of the massive withdrawal wave from the FTX exchange.

As a result of CZ tweets on 6 Nov

FTX processed $6 bn withdrawals with many withdrawing 90% of their account value

FTT sell from $24.36 to $2.30

SBF appointed John Ray as CEO and he filed for Chapter 11 bankruptcy pic.twitter.com/IGSdGltAq2

— Sunil (FTX Creditor Champion) (@sunil_trades) November 11, 2024

The lawsuit is one of several filed by FTX against its investors, partners, and former customers in Delaware Bankruptcy Court to recover as much of its assets as possible to repay its debts. Defendants include former White House communications director Anthony Scaramucci; digital asset exchange Crypto.com; and political groups like Mark Zuckerberg-founded FWD.US.

At the time of writing, Binance and Changpeng Zhao have not yet made any statements regarding the allegations from FTX. We will continue to update information when there are new developments.