Binance Founder Challenges $1.76B FTX Lawsuit Over Jurisdiction

Changpeng Zhao, co-founder and former CEO of Binance, has filed a motion to dismiss a $1.76 billion lawsuit brought by the FTX Recovery Trust. The legal action, initiated in November 2024, targets Zhao and Binance over a share buyback deal from 2021. Zhao’s legal team argues that the U.S. court lacks jurisdiction, given that the transactions occurred internationally and Zhao, a resident of the United Arab Emirates, is not subject to U.S. legal proceedings. The motion was submitted to the U.S. Bankruptcy Court for the District of Delaware, where the defense claims the allegations fall outside the court’s reach [1].

The lawsuit accuses Zhao and Binance of playing a role in FTX’s financial collapse, alleging that the buyback was funded with customer assets, thereby constituting a fraudulent transfer. Zhao’s defense characterizes the claims as “legally unfounded” and “outright incoherent,” emphasizing that he was a “nominal counterparty” in the deal and did not personally control the funds involved. The motion argues that Binance had a temporary partnership with FTX, which ended due to irreconcilable differences between Zhao and Sam Bankman-Fried, FTX’s former CEO [2].

According to court records, Alameda Ltd, a British Virgin Islands-registered entity, transferred the funds for the buyback. The Binance entities involved were also based in the British Virgin Islands, Ireland, and the Cayman Islands. Zhao’s legal team underscores that these offshore arrangements place the transactions beyond U.S. bankruptcy law’s jurisdiction. They also argue that the manner in which legal papers were served—via U.S.-based lawyers—is invalid under bankruptcy law for defendants living abroad [3].

The FTX trust, now managing the estate to repay creditors, asserts that Binance’s decision to liquidate its holdings in FTX’s native token, FTT, in November 2022, exacerbated the liquidity crisis that led to FTX’s collapse. The trust claims this contributed to billions in investor losses and a broader loss of confidence in the crypto market. However, Zhao’s motion challenges the validity of these claims, stating they fail to meet the legal standards required for securities-related protections [4].

This move by Zhao follows similar motions filed by former Binance executives Samuel Wenjun Lim and Dinghua Xiao, who are also named in the lawsuit and are seeking dismissal from the case. Zhao, who served a four-month prison sentence in September 2023 for U.S. anti-money-laundering violations, maintains that the FTX lawsuit unfairly shifts blame onto him and Binance for events largely driven by Sam Bankman-Fried’s misconduct [5].

The case is part of a broader legal and regulatory reckoning in the crypto industry following FTX’s collapse in November 2022. The FTX trust has already returned approximately $6.2 billion to creditors through two major rounds of distributions, with the next batch expected to begin on September 30. The ongoing litigation reflects the deepening scrutiny of crypto executives and the complex legal challenges in an industry where cross-border transactions are common [6].

Source:

[1] Binance founder moves to dismiss $1.8B lawsuit (https://finance.yahoo.com/news/binance-founder-moves-dismiss-1-154858150.html)

[2] Changpeng Zhao Asks To Toss $1.8B FTX Clawback Suit (https://cointelegraph.com/news/binance-zhao-dismissal-ftx-clawback-lawsuit)

[3] CZ Seeks Dismissal Of "Nonsensical" $1.76B FTX ... (https://99bitcoins.com/news/altcoins/cz-seeks-dismissal-of-nonsensical-1-76b-ftx-clawback-lawsuit/)

[4] CZ Calls $1.8B FTX Lawsuit Nonsensical, Says U.S. Court ... (https://coingape.com/cz-calls-1-8b-ftx-lawsuit-nonsensical-us-court-no-jurisdiction/)

[5] Changpeng Zhao Seeks Dismissal of FTX's $1.8 Billion ... (https://blockonomi.com/changpeng-zhao-seeks-dismissal-of-ftxs-1-8-billion-lawsuit-over-share-buyback/)

[6] Binance Co-Founder CZ Moves to Dismiss $1.8B FTX Lawsuit ... (https://cryptopotato.com/binance-co-founder-cz-moves-to-dismiss-1-8b-ftx-lawsuit-report/)