The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.
In a court filing out of Delaware, FTX called attention to a share buyback in 2021 where Binance, CZ, and others sold back their 20% stake in the exchange, along with an 18.4% stake in FTX’s U.S. affiliate, West Realm Shires.
According to FTX, the repurchase occurred at a time when FTX and its sister hedge fund Alameda—which funded the buyback with a mix of its own exchange token (FTT), Binance’s exchange tokens (BNB), and Binance’s stablecoins (BUSD)—were insolvent and unable to afford the transaction, deeming the sale a “constructive fraudulent transfer.”
The fallout culminated in November 2023 when Sam Bankman Fried (“SBF”)—former FTX CEO and crypto “wonderboy”—was convicted for criminal fraud following the exchange’s collapse and misappropriation of customer funds. That same month, CZ plead guilty to violations of the Bank Secrecy Act for failing to implement effective anti-money laundering guardrails and violating U.S. sanctions. While CZ served just a four-month sentence for his wrongdoings, SBF is now serving a 25-year sentence for his misdeeds.
The latest move by FTX may be retribution for CZ’s role in what some have deemed the coup de grace of the formerly-untouchable exchange. FTX, once worth $32 billion, infamously plummeted into bankruptcy in November 2022 after experiencing a surge in customer withdrawal requests it was unable to meet. Many believe a series of tweets by CZ sparked fear in the broader market, casting doubt on the exchange’s financial health.
The lawsuit accuses CZ of tweeting “a series of false, misleading, and fraudulent” statements, which FTX claims triggered the bankrun and hastened its downfall. In an unmitigated disaster, the value of FTT fell from roughly $25 per token in early November to less than $2 per token a week later.
In support of its claims, FTX cites a tweet from CZ on November 6 regarding FTT: “Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce.” At the time, Binance’s FTT holdings were worth over half a billion dollars—the liquidation of which would undoubtedly have a negative effect on the token’s price.
Another tweet explains: “As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations, we have decided to liquidate any remaining FTT on our books.”
FTT was a double-edged sword waiting to pierce FTX—not only did it account for a significant amount of its assets, but it also acted as collateral for a substantial portion of FTX’s outstanding debts. Both sides wreaked havoc on FTX’s ability to pay its debts, whether customers looking to withdraw their funds or lenders triggering default.
While CZ has yet to comment, Binance has denied all allegations, stating: “[t]he claims are meritless, and we will vigorously defend ourselves.”
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This article first appeared on the Kelman.law website.
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