FTX sues Binance for $1.8b over 2021 share repurchase

The bankrupt cryptocurrency exchange FTX has filed a lawsuit against its former competitor Binance, seeking nearly $1.8 billion. The suit, filed Sunday in Delaware Bankruptcy Court, focuses on a July 2021 transaction in which FTX repurchased shares held by Binance CEO Changpeng Zhao and other executives.

The lawsuit claims that FTX’s sister company, Alameda Research, which executed the transaction, was already insolvent at the time. Consequently, Alameda allegedly relied on approximately $1 billion of FTX’s customer deposits to complete the deal. Former Alameda CEO Caroline Ellison testified in court, stating, “Alameda was already financially underwater when it bought out Binance’s shares. The repurchase was reckless, drawing from FTX’s capital to cover costs.”

FTX’s suit calls the transaction a “constructive fraudulent transfer,” claiming that the shares Binance sold back were “worthless.” According to the complaint, “In other words, the FTX Trading shares acquired through the share repurchase were actually worthless based on a proper accounting of FTX Trading’s assets and liabilities.”

The repurchase saw FTX buy back a 20% stake in its primary platform and an 18.4% stake in its U.S.-based subsidiary, West Realm Shires. Binance has not issued a formal response to the suit, but spokespersons previously called the claims “baseless,” adding, “We will vigorously defend ourselves against these meritless allegations.”

The lawsuit alleges that Zhao acted with malicious intent. In particular, FTX’s complaint claims that Zhao made “false, misleading, and fraudulent tweets that were maliciously calculated to destroy his rival FTX, with reckless disregard to the harm that FTX’s customers and creditors would suffer.” According to the complaint, Zhao’s actions “added fuel to the fire” as FTX spiraled toward its collapse in November 2022, which ultimately led to $10 billion in customer losses.

Binance’s legal representatives pushed back against FTX’s narrative, claiming, “Zhao had no reason to destroy FTX—this is simply an attempt to deflect from the failed management that Bankman-Fried oversaw at his company.” Zhao and Bankman-Fried, who once enjoyed a cooperative relationship, have since become symbols of the cryptocurrency sector’s volatility and fierce rivalries.

FTX’s collapse left a lasting impact on the industry, with Bankman-Fried facing a 25-year prison sentence for his role in FTX’s financial mismanagement. Bankman-Fried’s own defense team has argued that he was “acting on the advice of his closest financial partners” and “had no knowledge of the company’s impending insolvency.”

Meanwhile, the lawsuit is just one of 23 filed by FTX over the weekend in an aggressive push to recover funds for its estate. Among the defendants are high-profile names like Anthony Scaramucci’s hedge fund SkyBridge Capital, Crypto.com, and FWD.US, the political organization founded by Mark Zuckerberg. FTX’s legal team commented, “We are working tirelessly to recover funds for the countless investors and customers impacted by the company’s failure.”