Bankrupt Cryptocurrency Exchange FTX Sues Binance and Changpeng Zhao for $1.76 Billion in Damages

The bankrupt cryptocurrency exchange FTX is currently suing Binance and its founder Changpeng Zhao (CZ) for $1.76 billion in damages.

FTX's founder, Sam Bankman-Fried (SBF), has already been sentenced in a US court. However, the legal disputes between SBF and FTX investors are ongoing, handled by the FTX bankruptcy liquidation committee.

The lawsuit against Binance and Changpeng Zhao is related to SBF, accused by FTX of fraudulently repurchasing shares, leading to significant financial losses for FTX, with Binance being a party involved.

In July 2021, the then-unsuspected FTX, still under SBF's control, negotiated using FTX's native token FTT, Binance's BSB token, and the Binance-issued US dollar stablecoin BUSD to buy back Binance and Changpeng Zhao's stakes in FTX.

Through these maneuvers, SBF redeemed the shares held by Binance and Changpeng Zhao in FTX, subsequently transferring a large quantity of FTT tokens to them. However, the bankruptcy liquidation committee's investigation found this transaction to be illegal.

The transaction was funded by Alameda Research, a trading company controlled by SBF, which was, in fact, bankrupt at the time. Thus, SBF had the company borrow money from FTX to complete this deal.

In essence, SBF used his trading company to borrow funds from FTX to buy out the shares held by Binance and Changpeng Zhao, subsequently controlling these shares himself, with no intention of repayment.

Later, Changpeng Zhao and some in the cryptocurrency tech media started noticing irregularities in the transactions between SBF and Alameda Research, suspecting the illicit withdrawal of cryptocurrencies deposited by FTX users.

Changpeng Zhao then released multiple messages revealing various insider information about FTX. Knowing well that these revelations would cause FTX's token, FTT, to plummet, he also sold his FTT holdings.

By November 2022, the market's adverse news triggered a massive drop in FTT's price, leading to a cascade of liquidations and the eventual discovery that FTX had indeed misappropriated user-deposited cryptocurrencies, becoming insolvent.

The FTX bankruptcy liquidation committee, having uncovered this, accused Changpeng Zhao of attempting to damage FTX's reputation through a series of false, misleading, and fraudulent messages, causing significant losses to FTX stakeholders.

Now, the committee is demanding Changpeng Zhao and Binance compensate the $1.76 billion from the share transaction, a demand that seems rather unreasonable since Changpeng Zhao's statements, which reflected the reality of FTX's myriad issues, were not incorrect.

Even without Changpeng Zhao, it's likely that others would eventually uncover SBF's misappropriation of funds and his complex transactions funneling them into his own pockets, with SBF's 25-year sentence already a source of grievance for many investors.