FTX Files $1.76 Billion Lawsuit Against Binance Over Alleged Fraudulent Buyback Deal

FTX has filed a $1.76 billion lawsuit against Binance, accusing the company of fraudulently profiting from a buyback deal that took place when FTX was already in financial trouble.

Here’s the backstory:

2019 Investment: Binance initially invested $18.3 million in FTX for a 20% ownership stake.

2021 Buyback: In July 2021, FTX bought back Binance’s stake, largely paid with its FTT tokens and other digital assets valued at around $2.3 billion at the time. FTX claims the buyback amount was vastly overvalued, given that FTT had little to no real worth.

FTX now argues this transaction should be considered a “constructive fraudulent transfer” because it was made while FTX was effectively insolvent. According to Caroline Ellison, former CEO of FTX affiliate Alameda Research, customer deposits - about $1 billion - were used to fund the buyback, which allegedly occurred despite Alameda’s reported $2.7 billion negative balance and $9.4 billion in liabilities.

The lawsuit also points to Binance CEO Changpeng Zhao (CZ) and his social media activity as catalysts for FTX’s collapse. When CZ tweeted about Binance’s plans to sell its FTT holdings in early November 2022, it triggered massive customer withdrawals from FTX, reaching up to $150 million per hour. This ultimately contributed to the significant drop in FTT’s price and FTX’s liquidity crisis. 

FTX’s suit aims to recover $1.76 billion from Binance, claiming the buyback was a significant factor in FTX’s downfall, pushing the company closer to bankruptcy.