Crypto Exchange Binance asked a Delaware bankruptcy judge last Friday to throw out a $1.76 billion lawsuit filed by the FTX estate.
The dismissal argues that the defunct crypto exchange is trying to blame Binance instead of founder Sam Bankman-Fried for its collapse.
Legal Battle Over 2021 Transfers
The suit centres on digital assets FTX transferred to Binance in July 2021 as part of a share repurchase deal. The lawsuit claims those transfers were paid for with misused customer funds.
But Binance counters that FTX remained a solvent business long after the transaction. Meanwhile, the FTX estate is preparing to distribute over $5 billion to creditors under its Chapter 11 plan.
In November, the FTX estate sued Binance for roughly $1.76 billion, seeking to recover crypto sent to Binance during a 2021 share buyback.
The estate contends that at the time of the deal, FTX was already insolvent and that the company surreptitiously used customer deposits to finance the purchase.
FTX had originally sold Binance a 20% stake in 2019, only to buy it back two years later in a mix of Binance’s native tokens, including BNB, BUSD, and FTT.
Binance’s Defence
Binance argues in its motion to dismiss that the FTX estate cannot prove its claim that the exchange was insolvent in July 2021. The filing states that FTX “remained a going concern for 16 months” after the deal, making it implausible that customer funds secretly funded the repurchase.
Binance also insists the complaint fails to tie former CEO Changpeng Zhao or the exchange itself to any wrongdoing that led to FTX’s downfall.
“Plaintiffs are pretending that FTX did not collapse as the result of one of the most massive corporate frauds in history,” Binance wrote, highlighting that Bankman is now serving a 25-year prison sentence.
In addition, the lawsuit claims Zhao used a tweet on November 6, 2022, announcing that Binance would sell its FTT holdings, to spark a wave of customer withdrawals from FTX, hastening its demise.
Binance rejects this allegation as well, saying its decision to liquidate those tokens was a standard risk management move prompted by public reports of FTX’s internal troubles.
FTX’s Repayment Efforts
While the dispute with Binance plays out in court, the FTX estate is moving forward with repaying creditors. FTX Trading Ltd. and the FTX Recovery Trust recently announced they will distribute over $5 billion in their second round of payments under the Chapter 11 reorganisation plan. This marks another step in efforts to return assets to customers and investors who lost funds when FTX collapsed in November 2022.
Separately, Backpack Exchange has opened withdrawals for former FTX EU users, allowing them to reclaim their frozen euro balances. Backpack Exchange posted that eligible customers can follow a two-step verification process to access their funds.
Background on FTX’s Collapse
FTX’s fall began in late 2022 when a CoinDesk report revealed that the sister trading firm Alameda Research held a large amount of FTT tokens on its balance sheet.
That news, combined with a public statement from Zhao about selling FTT, triggered a rapid withdrawal wave. FTX ultimately filed for Chapter 11 bankruptcy on November 11, 2022, in what became one of the largest bankruptcies in crypto history.
Customer funds vanished, leaving billions of dollars unaccounted for. U.S. authorities later arrested Bankman-Fried, and he was convicted of multiple fraud charges in late 2023.
Why This Lawsuit Matters?
The FTX estate’s clawback suits aim to recover assets that it says were improperly diverted before the collapse. If successful, this case could set a precedent for how courts treat post-collapse transfers between struggling crypto platforms and their larger counterparts.
For Binance, dismissing the suit would remove a significant legal threat and reaffirm its claim that it did not contribute to FTX’s collapse. For creditors and industry observers, the outcome will signal how courts allocate responsibility when one major crypto firm fails.
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