TLDR
- Changpeng Zhao has asked a Delaware court to dismiss FTX’s $1.8 billion lawsuit over a 2021 share buyback deal
- Zhao argues the case falls outside US jurisdiction as all entities involved were based outside the US
- FTX claims the buyback was funded with misused customer assets
- Zhao denies responsibility for FTX’s collapse, saying the exchange was “a fraudulent enterprise”
- Both Zhao and Bankman-Fried have faced legal consequences – Zhao served 4 months for money laundering while Bankman-Fried is serving 25 years for fraud
Former Binance CEO Changpeng Zhao has asked a Delaware bankruptcy court to dismiss a lawsuit filed by FTX that seeks to recover almost $1.8 billion from a share buyback deal. The defunct crypto exchange claims the funds were fraudulently transferred.
Zhao told the court that the suit attempts to “nonsensically blame” him for the actions of Sam Bankman-Fried, FTX’s founder. Bankman-Fried was sentenced to 25 years in prison after his conviction in a high-profile fraud case.
In his motion filed Monday, Zhao argued that his residency in the United Arab Emirates places him beyond Delaware’s legal jurisdiction. He also pointed to the cross-border nature of the disputed transactions.
“Plaintiffs’ fraudulent transfer claims improperly demand the extension of bankruptcy law abroad,” Zhao’s filing stated. He maintained that the case is “so far removed” from the US that “the statutes at issue, which lack extraterritorial application, do not even apply.”
FTX sued Zhao, Binance, and other former executives in November. The lawsuit claims that FTX fraudulently transferred around $1.8 billion in cryptocurrency to Binance in 2021 to buy back shares that the exchange had previously purchased.
The International Nature of the Deal
Zhao argued that “every pertinent part” of the share repurchase deal happened outside the US. The Binance entities involved are based in Ireland, the Cayman Islands, and the British Virgin Islands (BVI). The FTX-linked firm, Alameda Ltd, was also based in the BVI.
The deal used cryptocurrency, specifically Binance USD (BUSD) and FTX Token (FTT). Zhao’s lawyers stated that he “was not a transferee” but was “merely a ‘nominal counterparty’ in the transfer.”
“Plaintiffs do not allege that Mr. Zhao received or possessed dominion over the exchanged cryptocurrency,” his lawyers argued in the filing.
FTX, now under the control of a team of lawyers working to maximize returns for creditors, alleges that the exchange and Bankman-Fried knew it couldn’t fund the share repurchase. They claim customer funds were misused to complete the deal.
According to the filing, Binance and FTX were “briefly business partners” before they separated, with Binance returning their equity stake in exchange for cryptocurrencies, including FTX’s exchange token.
Social Media Posts and FTX’s Collapse
Zhao also disputed FTX’s claim that his social media posts contributed to the exchange’s downfall. After CoinDesk reported in November 2022 that FTX’s holdings were mostly made up of FTT, Zhao posted to X that Binance was selling its FTT holdings.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ
BNB (@cz_binance) November 6, 2022
FTX claimed this was a calculated attempt to spark customer withdrawals and sink the company. Zhao later posted that Binance would look to buy FTX and cover its shortfall, but quickly abandoned the plan.
In his motion, Zhao contended that his posts didn’t cause a run on FTX because the company “was a fraudulent enterprise” to begin with.
“Even if Mr. Zhao’s social media posts contributed to the timing of the FTX downfall, FTX had no right to exist and certainly no right to persist in fraud indefinitely,” his lawyers stated.
They compared holding Zhao liable for FTX’s collapse to “holding a whistleblower liable for the Ponzi scheme she exposed.”
Binance also sought to dismiss FTX’s lawsuit in May, arguing it was “legally deficient” and that FTX’s collapse was solely because it was “one of the most massive corporate frauds in history.”
Two former Binance executives, ex-chief compliance officer Samuel Wenjun Lim and Dinghua Xiao, asked the court last month to dismiss the suit.
Zhao served four months in prison last year after pleading guilty to money laundering charges. Bankman-Fried was sentenced to 25 years in prison in March 2024 for his role in FTX’s fraud. He has appealed the conviction, with a hearing set for November.
The post Changpeng Zhao Seeks Dismissal of FTX’s $1.8 Billion Lawsuit Over Share Buyback appeared first on Blockonomi.
Source: https://blockonomi.com/changpeng-zhao-seeks-dismissal-of-ftxs-1-8-billion-lawsuit-over-share-buyback/