FTX Sues Binance Over $1.76B Share Repurchase Deal

The bankruptcy estate of FTX, the failed cryptocurrency exchange, is suing Binance out of the hope it can recover $1.76 billion in assets.

In a Nov. 10 complaint, the FTX estate claims that Binance and its leadership received at least $1.76 billion worth of cryptocurrency fraudulently siphoned from FTX’s users. The assets were allegedly sourced from FTX user deposits and handed to its sister trading firm, Alameda Research, to buy Binance out of its ownership stake in FTX in July 2021.

"Alameda spent about $1 billion of FTX Trading’s capital received from depositors to fund the repurchase," the complaint alleged.

FTX seeks to recover the assets transferred to Binance, asserting that FTX’s insolvency rendered the transaction a “fraudulent transfer” under the U.S. Bankruptcy Code.

The filing named Binance, its founder Changpeng “CZ” Zhao, and several Binance subsidiaries among the defendants.

Repurchase deal

According to the complaint, Binance acquired a 20% equity stake in FTX Trading in November 2019. Binance purchased 250 series A preferred shares for approximately $18.3 million worth of its native token, BNB.

The relationship between Binance and FTX soured over time, leading to tensions between the founders, Zhao and Bankman-Fried. In July 2021, FTX initiated a share repurchase agreement through which Alameda Research would fund the purchase of Binance's stake for approximately $1.76 billion.

However, the lawsuit alleges that both Alameda Research and FTX were insolvent at the time of the deal, with Caroline Ellison, the former CEO of Alameda Research, raising concerns about the firms’ financial situation.

"We don't really have the money for this; we'll have to borrow from FTX to do it,” Ellison allegedly told Bankman-Fried. Bankman-Fried allegedly dismissed Ellison’s concerns, asserting that the repurchase was "really important" and had to be completed.

Bankman-Fried, the FTX co-founder, is currently serving a 25-year prison sentence following his conviction in 2023. Bankman-Fried was found guilty on seven counts of fraud, conspiracy, and money laundering while overseeing FTX’s operations.

FTX lawsuits

The complaint was filed just days after FTX launched 23 lawsuits targeting several firms that received payment from Bankman-Fried as part of “a campaign of influence-buying” despite the company’s shaky financial situation.

Plaintiffs include SkyBridge Capital and its founder, Anthony Scaramucci, who received $100 million as part of a deal for FTX to buy 30% of SkyBridge, in addition to Crypto.com, a rival exchange, and Fwd.us, a lobbying organization.

The lawsuits coincide with the FTX estate is working to repay creditors.

On Oct. 7, FTX’s bankruptcy plan to repay creditors using $16.5 billion in recovered assets received court approval. The estate aims to have refunded 98% of customers holding $50,000 or less within 60 days.

Intent to Harm FTX

FTX also accuses Binance and Zhao of engaging in a deliberate campaign to destroy FTX as a competitor.

On Nov. 6, 2022, Zhao tweeted that Binance would liquidate its FTT, FTX's native token, due to "recent revelations" concerning the company’s balance sheet. The announcement came four days after CoinDesk published a report alleging that the majority of FTX’s balance comprised FTT. The report also claimed that funds were commingled between FTX and Alameda Research.

The complaint alleges that Zhao’s tweet was inaccurate and intended to create panic among FTX's customers. FTX noted that within a few hours of Zhao's tweets, hourly customer withdrawals surged to an average of $150 million from $18 million per hour, leading to a liquidity crisis.

Binance and Zhao did not respond to a request for comment from The Defiant.