FTX Accuses Binance and CZ of ‘Reckless Disregard’ in Lawsuit

The crypto market knows turmoil, but the latest legal battle between FTX and Binance may very well turn into one of the largest legal disputes in the cryptocurrency space.

Two calendar years out from its spectacular failure, FTX has sought legal action against Binance and a former CEO Changpeng Zhao. Accusing CZ on allegations of ‘wilful disregard to customers and creditors.’

As reported by Bloomberg, the claim seeks to freeze $1.76b in assets. The plaintiff claims were siphoned fraudulently to Binance when the markets were volatile in late 2021. As the legal battle unfolds, the stakes are high for both exchanges. With FTX seeking to reclaim funds for its creditors and Binance facing scrutiny over past actions.

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FTX’s Fraudulent Transfer Allegation

The basis of action by FTX against the former top executives involves a series of transactions. These began in 2021 when the defunct exchange reportedly sent at least $1.76 billion worth of digital coins to Binance.

The initial transaction was completed in July 2021. Here Binance sold off its 20% stake in FTX back to the exchange. The sold off for a combination of FTT, Binance’s BNB tokens and BUSD. The Funds and assets in question were transferred by Alameda Research, FTX’s sister company. It was done in a so-called ‘fraudulent scheme,’ says FTX. They claim SBF schemed to have Binance bail out of the company.

FTX further says that the funds were transferred when the payment wasn’t financially sustainable. According to the complaint, Binance, led by its former CEO, moved to capitalize on FTX’s weakness. They did this to seize billions of dollars in misrepresentations.

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The FTX bankruptcy estate is now looking to unwind this transaction and recover these losses to refund creditors. These creditors lost considerable amounts when the exchange went bankrupt in November 2022.

A Growing Rift Between Crypto Giants

Binance was not exactly FTX’s greatest ally in the beginning. The two exchanges were previously affiliated. Binance was holding a 20% equity stake in the exchange. However, the dynamics started changing when SBF’s exchange became one of the largest competitors to Binance.

By mid-2021, Binance decided to exit from its holdings. As a result of the repurchase agreement between the two businesses, they decided to do this.

However, in this acquisition that took place last November, FTX alleges that Binance proceeded under rather unscrupulous circumstances. They did this to influence its decision-making process as it sought to repurchase tokens.

Timing is important when it comes to the acquisition deal. In the last year of its operations, 2021, FTX encountered growing tensions inside the company and from market fluctuations.

This is where the accusations of fraud come into play, as FTX alleges that Bankman-Fried, with the help of Alameda Research, colluded to borrow FTX customer’s funds to finance the acquisition- which might put the company in liquidation.

Caroline Ellison, a former CEO of Alameda Research, stated that the funds for the repurchase could not be provided, so Alameda used over $1 billion in customer deposits to make the purchase.

But things got worse early this year when CZ’S tweet in 2022 raised fundamental doubts about FTX’s actual solvency, which led to a massive withdrawal of customers’ funds from the exchange. FTX submits that Zhao made false, misleading and fraudulent statements which led to the collapse of FTX and prejudiced its customers.

FTX’s current lawsuit really focuses on this point as showing that Zhao’s tweet was not just an act of responding to the market situation but rather a plan to harm a significant competitor.

The Road Ahead for Binance and FTX

The lawsuit has broader implications for the entire crypto market, particularly in how institutional investors and exchanges handle transactions, partnerships, and customer funds. As of now, FTX’s creditors remain in limbo, with billions of dollars still owed in the aftermath of the collapse.

The $1.76 billion at the center of the lawsuit could be a key part of FTX’s effort to regain some footing and recover losses for its affected customers.

With both Binance and CZ facing increasing legal pressures, this lawsuit could spark further scrutiny of Binance’s operations and its role in the broader crypto ecosystem. As the legal proceedings unfold, the market will be watching closely to see whether FTX’s allegations hold merit and whether Binance will be forced to return the assets in question.