FTX vs. Zhao
Changpeng ‘CZ’ Zhao, the founder and ex-CEO of the world’s largest exchange, Binance, has moved to court to challenge a lawsuit leveled against him by collapsed exchange FTX. Initially filed last November, the lawsuit seeks to recover $1.8 billion in various cryptocurrencies sent to Binance four years ago.
FTX’s court filings show that the funds were transferred to Zhao’s exchange in July 2021 after former FTX CEO Sam Bankman-Fried entered a deal to buy back a 20% equity stake that Binance was holding at the time. The two exchanges started their strategic relationship in 2019 when Binance became an early investor in FTX.
Why Did FTX File Lawsuit Against Zhao?
However, the relationship turned sour, prompting Bankman-Fried to end it by buying back Binance’s stake using FTX’s native token FTT. It was later discovered that Bankman-Fried had misappropriated user funds to enter the equity buyback deal. Now, the FTX estate, tasked with recovering funds and compensating affected FTX users, has told the court that the $1.8 billion transfer to Binance was fraudulent and that its former CEO, Zhao, who oversaw the transaction, should make a refund.
In his defence, Zhao, through his lawyers, has argued that he did not directly receive the crypto assets in question. He claims he was a mere ‘nominal signatory,’ not the recipient of the funds.
FTX Accuses Zhao of Contributing to the Exchange’s Collapse
Besides seeking a refund, FTX has accused CZ of playing a key role in bringing down FTX. In its lawsuit, the exchange argues that Zhao’s tweets in November 2022 caused tension among users, prompting them to withdraw significant amounts of funds that FTX couldn’t handle, thus triggering its sudden downfall.
Meanwhile, Caroline Ellison, the former boss of FTX’s sister firm Alameda Research, told the court in October 2023 that the exchange was already bankrupt due to reckless borrowing even before November, when Zhao shared his tweets about FTX’s situation. Bankman-Fried, the man who authorized illegal borrowing from customers, was jailed for 25 years last year. Interestingly, CZ was also imprisoned for four months in 2024 after he was found guilty of violating several anti-money laundering policies.
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