FTX Sues Binance, Former CEO CZ for $1.8B

As a seasoned analyst with over two decades of experience in the financial industry, I find myself increasingly astounded by the twists and turns in this ongoing saga between FTX and Binance. The latest development, where FTX accuses Binance and its former CEO of fraudulent activities, is yet another shocking chapter in this rollercoaster ride.

In simpler terms, the bankrupt cryptocurrency platform FTX has filed a lawsuit against its competitor Binance and its previous CEO, Changpeng “CZ” Zhao, claiming that FTX’s ex-CEO, Sam Bankman-Fried, illegally purchased shares from Binance.

In July 2021, negotiations took place between Bankman-Fried and Zhao for the acquisition of Binance and Zhao’s share in FTX. This deal was facilitated using FTX’s native token, FTT, and coins BSB and BUSD issued by Binance, which had a combined value of approximately $1.76 billion at the time.

The transaction was financed by Sam Bankman-Fried’s trading company, Alameda Research. However, at that moment, Alameda was facing insolvency, and Caroline Ellison, its second-in-command, admitted that they didn’t have sufficient funds for the purchase, stating, “We won’t actually have the money for this; we’ll need to borrow from FTX to make it happen,” as detailed in a court filing submitted on Sunday to the U.S. Bankruptcy Court for the District of Delaware.

As a researcher, I am pointing out that the evidence suggests FTX may have been insolvent and its FTT tokens devoid of value during the specified transaction. Given these circumstances, it is plausible to consider this exchange as potentially fraudulent.

In November 2022, FTX filed for bankruptcy after investigations by CoinDesk uncovered discrepancies in the financial records between the exchange and Alameda. Earlier this year, Sam Bankman-Fried was given a prison sentence of 25 years due to multiple charges related to fraudulent activities.

It can be said that the speedy decline of the exchange was somewhat accelerated due to Binance and Zhao offloading a significant amount of FTT, thereby causing a drop in FTT’s value and exacerbating FTX’s predicament.

In a recent report, FTX claims that Zhao intentionally spread untrue, deceptive, and potentially fraudulent statements about their company via tweets, which not only harmed the reputation of FTX but also prevented potential recovery of value for its shareholders.

Binance had not responded to CoinDesk’s request for comment at press time.