Bankrupt crypto exchange FTX has taken legal action against rival Binance and former Binance CEO Changpeng "CZ" Zhao over an alleged fraudulent repurchase of shares by FTX's former CEO, Sam Bankman-Fried.
Bankman-Fried negotiated to buy Binance and Zhao's stake in FTX in July 2021 using FTX's native token, FTT, and Binance-issued coins BSB and BUSD, which were then worth around $1.76 billion.
The purchase was funded by Bankman-Fried's trading firm, Alameda Research. Alameda, however, was insolvent at the time, and second-in-command Caroline Ellison warned that “we don’t really have the money for this, we’ll have to borrow from FTX to do it,” according to a Sunday filing with the U.S. Bankruptcy Court for the District of Delaware.
The document alleges that FTX was already insolvent and the FTT tokens worthless at the time of the transaction, and therefore the transfer should be classed as fraudulent.
FTX entered bankruptcy in November 2022 following revelations unearthed by CoinDesk about balance sheet irregularities between the exchange and Alameda. Bankman-Fried was sentenced to 25 years in prison earlier this year on numerous counts of fraud.
The exchange's dramatic collapse was in some ways hastened by Binance and Zhao selling their large holdings of FTT, which helped crash its value and worsen FTX's position.
FTX alleges that Zhao sought to harm his competitor by sending out a series of tweets about the company that were "false, misleading and fraudulent," and destroyed value that would have otherwise been recoverable by FTX’s stakeholders, according to the filing.
Binance had not responded to CoinDesk's request for comment at press time.
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