FTX sues Binance, former CEO CZ for alleged fraudulent $1.76b transfer

In 2019, Binance acquired a 20% stake in collapsed FTX in a deal with Sam Bankman-Fried
In 2021, Binance and FTX agreed to a deal that saw FTX buying back the stake, amounting to $1.76bn in FTT, BNB, and BUSD
The transfer was done by Alameda Research, which was insolvent at the time and couldn’t afford the transaction

FTX has filed a lawsuit against Binance and its co-founder and former CEO Changpeng “CZ” Zhao to reclaim $1.76 billion over an alleged fraudulent transfer.

A filing from November 10 stated that Sam Bankman-Fried, FTX’s co-founder, fraudulently transferred “at least $1.76 billion” to Binance and Binance executives in July 2021.

In March, Bankman-Fried was sentenced to 25 years in prison for defrauding customers.

According to the filing, the transfer was part of a repurchase deal between Binance and FTX and shouldn’t have occurred. The filing claims that in November 2019, Binance acquired a 20% equity stake in FTX with over one million in Binance’s BNB token in a deal with Bankman-Fried.

Around February 2020, Binance acquired a further 18.4% in WRS, an umbrella company of Bankman-Fried based in the US. However, in July 2021, the two parties agreed on a deal that saw FTX buy back Binance and its executives’ entire stakes in FTX and WRS.

This amounted to around $1.76 billion in FTX’s FTT token, BNB, and BUSD (Binance’s stablecoin), which was funded by FTX’s sister company Alameda Research.

Couldn’t afford the transaction

Per the filing, the transfer was fraudulent because Alameda was insolvent at the time and couldn’t afford the transaction. According to testimony from Caroline Ellison, former CEO of Alameda Research, Alameda spent around “$1 billion of FTX Trading’s capital received from depositors to fund the repurchase.”

In September, Ellison was sentenced to 24 months in prison for her role in the collapse of FTX.

Following the repurchase, on November 6, 2022, Zhao is said to have “sent a series of false, misleading, and fraudulent tweets that were maliciously calculated to destroy his rival FTX, with reckless disregard to the harm that FTX’s customers and creditors would suffer.”

As a result, “Zhao’s false tweets triggered a predictable avalanche of withdrawals at FTX – the proverbial run on the bank that Zhao knew would cause FTX to collapse,” according to the filing.