Binance's former CEO Changpeng Zhao has requested the court to dismiss FTX's lawsuit, which seeks to recover nearly $1.8 billion from a transaction between Binance and FTX, with the now-defunct exchange claiming it was a fraudulent transfer.
Zhao stated to the Delaware bankruptcy court that the lawsuit attempts to "absurdly blame" him for the actions of FTX founder Sam Bankman-Fried, who was sentenced to 25 years in prison after a high-profile fraud trial.
Living in the United Arab Emirates, Zhao argued that the allegations in the lawsuit are "far removed from the United States," to the extent that "the relevant regulations lack extraterritorial applicability and are not applicable at all."
FTX sued Zhao, Binance, and other executives in November, claiming that FTX fraudulently transferred approximately $1.8 billion in cryptocurrency to Binance in 2021 to repurchase shares previously acquired by the exchange.
FTX is now controlled by a team of lawyers aiming to maximize creditor returns, who stated that the exchange and Bankman-Fried knew they could not fund the share buyback, so they used customer funds to complete the transaction.
Zhao contended that "every relevant part" of the share buyback transaction occurred outside the United States, as the involved Binance entities are located in Ireland, the Cayman Islands, and the British Virgin Islands (BVI), while the company related to FTX, Alameda Ltd, is also based in the BVI.
He added that the transaction utilized cryptocurrency, specifically Binance USD (BUSD)—a stablecoin created by the exchange—and FTX Token (FTT), which was created by FTX.
"The plaintiffs have not alleged that Mr. Zhao received or had control over the exchanged cryptocurrency," his lawyers argued.
They further stated that Zhao is "not an assignee," but rather "merely a 'nominal counterparty' in the transfer."
Zhao also argued that his posts on X regarding the sale of FTT tokens by FTX and Binance did not lead to the collapse of the cryptocurrency exchange, as the company claimed.
After CoinDesk reported in November 2022 that FTX's holdings were primarily composed of FTT, Zhao posted on X that Binance was selling its FTT holdings.
FTX claimed this was a well-orchestrated attempt to trigger customer withdrawals and bring down the company.
Zhao also posted on X that Binance would seek to acquire FTX and fill its funding gap, but soon withdrew from the plan to acquire the company.
In his motion, Zhao stated that his posts did not exacerbate FTX's run on the bank and collapse, as the company "was a fraudulent enterprise."
"Even if Mr. Zhao's social media posts contributed to the timing of FTX's collapse, FTX had no right to exist, let alone a right to continue defrauding indefinitely," his lawyers argued.
"To hold Mr. Zhao responsible for FTX's implosion is akin to holding a whistleblower accountable for the Ponzi scheme she exposed, on the grounds that her revelation caused a 'well-known bank run,'" they said.
In May, Binance sought to dismiss FTX's lawsuit, arguing that the lawsuit is "legally flawed" and that FTX's collapse was entirely due to it being "one of the largest corporate frauds in history."
FTX also sued two former Binance executives, former Chief Compliance Officer Samuel Wenjun Lim and Dinghua Xiao, who held various positions. Both requested the court to dismiss the lawsuit last month.
Zhao served four months in prison last year after pleading guilty to money laundering charges. Bankman-Fried was sentenced to 25 years in prison for his role in the FTX fraud and has appealed his conviction, with a hearing scheduled for November.
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Original article: “Binance founder Changpeng Zhao seeks to dismiss $1.8 billion FTX lawsuit”
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