FTX accuses Binance of fraud and market manipulation in new lawsuit

Collapsed cryptocurrency exchange FTX has launched a major lawsuit against its competitor, Binance, in an effort to recover assets for its creditors.

Filed on 10 November, the lawsuit is part of FTX’s bankruptcy proceedings and focuses on a 2021 deal with Binance. 

FTX claims that Binance, along with its former CEO Changpeng Zhao (known as “CZ”), acted fraudulently and hurt FTX’s financial stability. 

According to FTX, Binance received close to $1.8 billion in cryptocurrency from FTX through a share repurchase agreement, which allowed FTX to buy back shares held by Binance. 

At the time, the companies used a combination of cryptocurrencies, including FTX’s own token ($FTT) and Binance tokens like $BNB and $BUSD, for this transaction.

In its lawsuit, FTX claims this agreement was improper because FTX was already financially unstable. The suit states that Sam Bankman-Fried, FTX’s co-founder who is now serving a 25-year prison sentence for fraud, used customer deposits from FTX’s sister trading firm, Alameda Research, to fund the transaction. 

FTX’s lawyers argue that approximately $1 billion in customer deposits was used for this payment, even though FTX lacked the funds to cover it.

They believe that the 2021 deal was part of a strategy by Bankman-Fried to make FTX and Alameda appear financially healthy, despite their financial troubles. 

According to FTX, this approach gave a false impression to the market, creating an illusion of stability and masking serious liquidity problems.

In response, a Binance spokesperson denied these claims, calling them “meritless” and saying the exchange will defend itself. Zhao has not commented on the lawsuit directly.

Accusations of market manipulation

The lawsuit further accuses Binance’s CEO at the time, Zhao, of intentionally destabilising FTX. 

According to FTX, Zhao spread false information about FTX’s finances, which triggered panic among FTX’s customers and caused a spike in withdrawals.

A key moment in this saga occurred on 6 November 2022, when Zhao tweeted that Binance planned to sell its holdings in FTT. 

This announcement, FTX claims, was a calculated move that led to a surge of customer withdrawals, creating a “bank run” on the exchange. 

FTX argues this wave of withdrawals worsened its financial problems and ultimately forced it into bankruptcy.

Initially, Binance had agreed to buy FTX in a non-binding agreement, which could have offered FTX a lifeline. However, shortly after beginning its due diligence, Binance pulled out of the deal, which intensified the market’s concerns about FTX’s stability. 

FTX’s legal team argues that Zhao’s actions were “false and misleading”, and aimed at damaging a major competitor, contributing to FTX’s eventual collapse.

Binance, on the other hand, claims it withdrew from the deal because its due diligence raised concerns about FTX’s finances. 

Binance insists that it did not intend to cause a crisis for FTX but acted in its own interest to avoid a risky acquisition.

Broader legal moves 

The lawsuit against Binance is just one of more than 20 legal actions FTX has taken since filing for bankruptcy in November 2022.

The exchange, now under new management, is seeking to recover assets for creditors by holding other parties accountable. 

The suits, filed in Delaware bankruptcy court, include actions against several individuals, companies, and investors.

FTX’s legal actions extend to well-known individuals such as Anthony Scaramucci, former White House communications director, as well as organisations like the crypto exchange Crypto.com and FWD.us, a political advocacy group backed by Mark Zuckerberg, CEO of Meta. 

The exchange hopes to recover significant amounts of money through these cases to repay its creditors.

FTX’s collapse followed revelations by CoinDesk in late 2022 that exposed financial issues between FTX and Alameda Research, which were closely tied. 

The report revealed an unsteady balance sheet and raised serious concerns about the financial health of both companies, which led to a swift loss of confidence from investors and users. 

When Binance decided to sell its holdings in FTT, FTX’s own cryptocurrency, this worsened the situation, causing FTT’s value to plunge and accelerating FTX’s collapse.

The new FTX management team believes Zhao’s tweets were part of a deliberate attempt to harm FTX’s reputation and reduce the amount that could be recovered for FTX’s creditors. 

According to the legal documents, FTX alleges Zhao’s statements were “false, misleading and fraudulent”, ultimately resulting in substantial losses for its stakeholders.

The outcome of this case remains uncertain, as Binance maintains that it will contest FTX’s claims in court.