FTX Files $1.8 Billion Lawsuit Against Binance Over Alleged Financial Malpractice

By: Eva Baxter

The ongoing legal battle in the cryptocurrency realm has seen a significant new filing, as the bankrupt crypto exchange FTX recently lodged a lawsuit against major cryptocurrency exchange Binance and its former CEO Changpeng Zhao. This lawsuit, filed on November 10, aims to reclaim approximately $1.8 billion that FTX claims Binance unlawfully procured through a series of financial maneuvers that allegedly contributed to FTX's eventual financial crisis.

The legal narrative unfurls from Binance’s initial venture into FTX in November 2019 when it secured a 20% stake by exchanging 1,002,739 BNB tokens, making Binance a key player in FTX’s early days. Fastrack to 2021, tension between FTX founder Sam Bankman-Fried and Zhao reportedly led to Binance stepping back from its investment positions in FTX and its U.S. affiliate, West Realm Shires (WRS).

Allegedly, Zhao's social media postings following financial instability reports concerning Alameda Research, a sister trading firm of FTX, played a crucial role in unsettling the market, precipitating a liquidity crisis that FTX terms as fatal to its operations. Investors’ panic allegedly catalyzed an unprecedented surge in withdrawals, forcing FTX into a corner.

Despite warnings from Caroline Ellison, former CEO of Alameda, about the insolvency risks associated with funding a buyback of Binance’s shares using user deposits, the transaction pushed forward. In the end, according to FTX, the shares obtained by Binance in the transaction were essentially worthless. FTX's complaint paints a picture of orchestrated financial engineering, portraying Binance and Zhao as central figures in the alleged misconduct that undermined FTX’s financial health.

This lawsuit follows a broader suite of legal actions by the FTX bankruptcy estate, which is determinedly pursuing asset recovery claims against various industry players to maximize recoverable value for its stakeholders. In conclusion, as this legal battle intensifies, the outcome could have far-reaching implications for the cryptocurrency industry, potentially redefining business conduct standards among large-scale exchanges moving forward. The lawsuit highlights critical issues of financial transparency, solvency, and ethical practices in the trading and transfer of high-value digital assets.