Syed Rahman assesses the legal dispute involving the biggest names in crypto.
Binance and its former chief executive Changpeng Zhao are being sued for $1.8 billion by collapsed crypto exchange FTX over an allegedly fraudulent share deal.
The deal at the centre of the legal action occurred in July 2021. It involved Binance, Zhao and two other Binance executives selling their 20% stake in FTX back to it in exchange for crypto tokens valued at $1.76 billion.
But the lawsuit aims to regain the tokens for the FTX bankruptcy estate and says the deal should never have been done. Administrators of the FTX estate say the exchange and its sister trading house Alameda Research “may have been insolvent from inception and certainly were balance-sheet insolvent by early 2021”. They argue the $1.76 billion payment in the deal was “largely funded” by “secretly and unlawfully” using customers’ money.
FTX co-founder Sam Bankman-Fried was sentenced to 25 years in prison for fraud earlier this year. Zhao stepped down from Binance in 2023 after he and the company pleaded guilty to criminal charges relating to failing to establish proper money laundering controls. He was jailed for four months.
Volatile
Even allowing for the often volatile nature of the digital currency world, this is certainly a case of putting a very big cat among the crypto pigeons. It is a scenario that will confirm the suspicions of many who view the crypto world with distaste.
On the one hand, this could be seen as the latest phase of hostilities between two of the biggest and most controversial entities in the crypto world. But on the other, it can be viewed as a very high-profile reminder of the need to be conducting thorough due diligence on each and every aspect of a deal.
Binance’s well-reported failings regarding money laundering controls may be an indicator of the strength of the internal regulations it previously had in place. Maybe a failure to ascertain the solvency of FTX and Alameda Research through appropriate due diligence will prove a costly omission for Binance.
But whatever the outcome, it is hard to imagine anyone will emerge as a clear winner.
