The FTX bankruptcy estate has filed a high-stakes lawsuit against cryptocurrency giant Binance and its former CEO, Changpeng “CZ” Zhao, seeking to recover $1.8 billion. This action is the latest in a series of lawsuits by the estate as it works to address financial losses stemming from FTX’s collapse. According to a complaint filed on Nov. 10, the plaintiffs argue that Binance and its executives received an estimated $1.76 billion from FTX in a transaction they claim was fraudulent due to FTX’s financial instability.

The deal in question is Binance’s 2021 repurchase agreement with Sam Bankman-Fried, co-founder of FTX, who is currently serving a 25-year prison sentence. In this transaction, Bankman-Fried sold a 20% stake in FTX’s international business and an 18.4% share in FTX’s U.S.-based entity, known as West Realm Shires Services (FTX US). The FTX bankruptcy estate contends that the funds Bankman-Fried used for this transaction— a combination of FTX’s native FTX Token (FTT), Binance Coin (BNB), and Binance USD (BUSD) stablecoin—were worth around $1.76 billion at the time. This deal, they argue, was a fraudulent transfer, given that FTX and its affiliate Alameda Research were likely insolvent when the transaction took place.

Allegations of Insolvency and Fraudulent Transfer Amid FTX Bankruptcy

The FTX bankruptcy estate’s filing claims that FTX and Alameda Research may have been operating with financial instability since inception and were “certainly balance-sheet insolvent by early 2021.” This insolvency, the estate argues, made the 2021 share repurchase deal with Binance effectively a fraudulent transfer, as FTX allegedly lacked the financial stability to fulfill such a substantial agreement.

Bankman-Fried’s use of company tokens like FTT and Binance-operated BNB, along with BUSD, in the transaction is also under scrutiny. The estate alleges that these payments, made in FTX’s proprietary token and Binance assets, masked FTX’s weak financial position, while giving Binance significant financial gains. The plaintiffs assert that by accepting this substantial payment, Binance executives benefited from FTX’s unsustainable financial practices, further compromising FTX’s stability.

Ongoing Legal Battles Surrounding FTX Bankruptcy

This $1.8 billion lawsuit highlights the ongoing complexities surrounding the FTX bankruptcy, as the estate seeks to recover lost assets from various firms involved with FTX’s rise and fall. Binance, the world’s largest cryptocurrency exchange, and its former CEO CZ are now central figures in the dispute, which brings attention to financial transactions that may have exacerbated FTX’s financial collapse.

The FTX bankruptcy estate’s legal efforts reflect broader industry challenges, where once-thriving exchanges now face scrutiny for their financial practices. Amidst this scrutiny, the lawsuit could have significant implications for Binance, especially if the plaintiffs succeed in their efforts to reclaim assets. The case emphasizes the risks involved in high-stakes cryptocurrency investments, with companies potentially facing financial and reputational consequences as the legal proceedings unfold.

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