Collapsed cryptocurrency exchange FTX has filed a lawsuit against Binance and its former CEO, Changpeng Zhao, aiming to reclaim $1.76 billion over what it describes as a "fraudulent" share buyback deal.
The lawsuit, filed in Delaware court, claims the 2021 transaction, in which Binance sold a 20% stake back to FTX, was carried out with funds that FTX's trading arm, Alameda Research, allegedly couldn't afford, as it was already insolvent.
FTX Alleges Zhao's Actions Triggered Market Panic, Leading to Collapse
FTX's administrators accuse Zhao of intentionally destabilizing the exchange through various actions. According to FTX, Zhao's public statements about Binance's plans to sell $529 million worth of FTX tokens triggered panic and an increase in customer withdrawals, leading to FTX's liquidity issues and rapid collapse.
"Alameda was insolvent at the time of the share repurchase and could not afford to fund the transaction," states the suit, labeling the deal as a "constructive fraudulent transfer."
Binance, however, denies the allegations, calling them "meritless" and promising a strong defense in court, said Forbes.
The lawsuit points to several specific actions as evidence of alleged intent. Among these are Zhao's tweets on November 6, 2022, where he referred to Binance's liquidation of FTX tokens as "post-exit risk management."
FTX claims these comments were designed to harm its market position and ultimately led to the company's collapse.
According to CNBC, the fallout from FTX's collapse has had industry-wide impacts, with FTX founder Sam Bankman-Fried now facing a 25-year prison sentence over fraud charges related to FTX's failure.
