Key Takeaways
- In his filing on Monday, Zhao argued that the case attempts to “nonsensically blame” him for FTX’s collapse and the misconduct of Bankman-Fried
- Zhao’s lawyers stated that the allegations are “legally unfounded” and outside U.S. jurisdiction, stressing that “every pertinent part” of the transaction occurred offshore.
Changpeng Zhao, the former CEO of Binance, has asked a Delaware bankruptcy court to dismiss a lawsuit filed by the collapsed exchange FTX, which is seeking to claw back nearly $1.8 billion tied to a 2021 share repurchase deal between the two companies.
FTX claims that the transaction constituted a fraudulent transfer, alleging that the exchange and its founder, Sam Bankman-Fried, relied on customer funds to repurchase Binance’s equity stake. The deal involved crypto assets rather than cash, with Binance USD (BUSD) and FTT tokens used as consideration.
In his filing on Monday, Zhao argued that the case attempts to “nonsensically blame” him for FTX’s collapse and the misconduct of Bankman-Fried. Zhao’s lawyers stated that the allegations are “legally unfounded” and outside U.S. jurisdiction, stressing that “every pertinent part” of the transaction occurred offshore.
It underlined that the Binance entities involved are based in Ireland, the Cayman Islands, and the British Virgin Islands (BVI). It added that the FTX-linked firm, Alameda Ltd, that has come under the scanner was also based in the BVI.
According to the motion, the entities involved in the deal operated from Ireland, the Cayman Islands, and the British Virgin Islands. Alameda Ltd., which handled FTX’s side of the transaction, was also based in the BVI. Zhao maintains that he was not a transferee of the funds, calling himself a “nominal counterparty,” and denies ever receiving control or dominion over the cryptocurrency exchanged.
The lawsuit, filed by FTX’s bankruptcy team in November, accuses Binance and Zhao of fraudulently transferring approximately $1.8 billion in crypto to Binance in 2021 to buy back shares that the firm had purchased. Former Binance executives Samuel Wenjun Lim and Dinghua Xiao have also been named in the case and moved last month to dismiss claims against them.
Zhao’s defense points to legal provisions limiting the extraterritorial application of U.S. statutes and argues that constructive fraud claims fail to meet requirements under federal law governing qualifying transactions tied to securities contracts. His defense stressed that the deal used crypto, primarily Binance USD (BUSD), a stablecoin created by the exchange, and FTX Token called FTT, which was created by FTX.
The filing also disputes suggestions that Zhao’s social media statements regarding FTX contributed to a liquidity crisis that led to its collapse, stating the exchange “was a fraudulent enterprise” long before its implosion.
“To hold Mr. Zhao liable for FTX’s implosion would be no different than holding a whistleblower liable for the Ponzi scheme she exposed,” his lawyers wrote. Bankman-Fried is now serving a 25-year prison sentence for fraud and conspiracy.
