The legal action, initiated in the US Bankruptcy Court for the District of Delaware, centres on a transaction in July 2021 in which Bankman-Fried agreed to repurchase Binance and Zhao's stake in FTX.
Bankman-Fried reportedly used FTX's native token (FTT) and Binance-issued assets (BNB and BUSD), valued at roughly USD 1.76 billion at the time, to finance the repurchase. His trading firm, Alameda Research, which funded the transaction, was allegedly insolvent, as documented in court filings. In the same filing, FTX's former co-CEO Caroline Ellison reportedly acknowledged the liquidity issues.
According to the filing, FTX argues that the company was already insolvent when the transaction took place, with FTT tokens holding little to no actual value. This insolvency, FTX claims, renders the transfer fraudulent, as it involved assets deemed worthless.
The exchange's insolvency was exposed in November 2022, when CoinDesk highlighted financial inconsistencies between FTX and Alameda. Following these revelations, FTX quickly spiralled into bankruptcy, and Bankman-Fried was later convicted on multiple counts of fraud, receiving a 25-year prison sentence.
FTX contends that Zhao further worsened its financial standing by liquidating Binance’s substantial FTT holdings, which sharply reduced the token's value and exacerbated FTX's collapse. The filing also accuses Zhao of making misleading statements on social media, alleging that his posts were ‘false, misleading and fraudulent,’ actions that allegedly reduced potential recoverable value for FTX stakeholders.
In response, a spokesperson for Binance dismissed the claims as meritless, stating that the company intends to vigorously defend against the allegations.
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