In a stunning turn of events, the collapsed crypto exchange FTX has filed a bombshell lawsuit against rival Binance and its former CEO Changpeng “CZ” Zhao. The suit, submitted to the U.S. Bankruptcy Court in Delaware, alleges that ex-FTX CEO Sam Bankman-Fried engaged in a fraudulent share buyback scheme totaling nearly $1.8 billion.
Buyback Funded by Insolvent Alameda Research
According to court documents, Bankman-Fried negotiated the repurchase of Binance and Zhao’s stake in FTX back in July 2021. The deal, valued at approximately $1.76 billion at the time, was financed using FTX’s native FTT token along with Binance’s BNB and BUSD coins.
However, the buyback was reportedly funded by Bankman-Fried’s trading firm Alameda Research, which sources close to the matter claim was already insolvent. Caroline Ellison, Alameda’s co-CEO, allegedly warned that they didn’t truly have the funds, stating, “we don’t really have the money for this, we will need to borrow from FTX to do it.”
FTX Claims Tokens Were Worthless
FTX’s legal team asserts that not only was the exchange itself insolvent at the time of the transaction, but the FTT tokens used had no actual value. Consequently, they argue the transfer should be classified as fraudulent.
The filing alleges that FTX was already insolvent and the FTT tokens used in a share buyback deal were worthless, and therefore the transfer should be deemed fraudulent.
– According to court documents
Bankman-Fried’s Downfall and Conviction
FTX’s spectacular implosion in November 2022 followed revelations uncovered by CoinDesk about irregularities in the balance sheet between the exchange and Alameda. Bankman-Fried, once hailed as a crypto wunderkind, was sentenced to 25 years in prison earlier this year on multiple fraud charges.
The exchange’s dramatic downfall was accelerated in part by Binance and Zhao selling off their significant holdings of FTT, contributing to the token’s plummeting value and exacerbating FTX’s precarious position.
Allegations of False Tweets and Destroyed Value
FTX further alleges that Zhao sought to harm his competitor by posting a series of tweets about the company that were “false, misleading, and fraudulent.” According to the filing, these actions destroyed value that could have otherwise been recovered by FTX stakeholders.
As of press time, Binance had not responded to requests for comment on the lawsuit. The case is sure to send shockwaves through the already turbulent cryptocurrency industry as two of its biggest players face off in a high-stakes legal battle.
Key Takeaways
- FTX sues Binance and ex-CEO CZ for $1.8B over alleged fraudulent share buyback
- Deal funded by insolvent Alameda Research using “worthless” FTT tokens
- Lawsuit claims Zhao’s “false” tweets destroyed recoverable value
- Binance has not yet commented on the legal action
As this story develops, the crypto community will be watching closely to see how this lawsuit unfolds and what implications it may have for the future of digital asset exchanges. The battle between FTX and Binance is far from over, with billions of dollars and the reputations of key industry figures hanging in the balance.
