Binance Moves to Dismiss FTXs $1.76 Billion Clawback Lawsuit

Binance has taken a decisive step in its legal battle with FTX by filing a motion to dismiss a $1.76 billion clawback lawsuit. The lawsuit, initiated by the FTX estate, seeks to recover funds that were transferred to Binance in 2021. Binance's legal team argues that the lawsuit is legally flawed and lacks factual support, asserting that FTX's collapse was the result of massive fraud orchestrated by its own leadership, particularly former CEO Sam Bankman-Fried, who is currently serving a 25-year prison sentence for defrauding customers, investors, and lenders.

The lawsuit, filed in November, alleges that FTX transferred approximately $1.76 billion worth of cryptocurrency to Binance in July 2021 as part of a share repurchase agreement. FTX had previously sold Binance a 20% equity stake in 2019, which it later bought back using a mix of BNB, BUSD, and FTT tokens. The FTX estate claims that the exchange was insolvent at the time of the 2021 deal and that misappropriated customer funds secretly financed the repurchase. However, Binance contends that FTX remained operational for 16 months after the transaction, making any claim of prior insolvency implausible.

Binance also addresses allegations that its former CEO, Changpeng Zhao, used Twitter to trigger a wave of customer withdrawals. In November 2022, Zhao posted that Binance would liquidate its FTT holdings due to recent revelations. Binance defends these tweets, stating that they were posted in response to a bombshell report that exposed FTX's fraudulent activities. The exchange further argues that the case should be dismissed for lack of personal jurisdiction, as none of the corporate defendants are based in the United States and did not directly engage in the transfers.

The FTX recovery trust has filed numerous clawback suits to recover assets following the platform’s collapse, which triggered one of the largest crypto bankruptcies in history and left billions in customer funds missing. Binance's motion to dismiss the lawsuit is a significant development in the ongoing legal battle between the two crypto exchanges. The outcome of this motion will determine whether the case proceeds to discovery or is dismissed entirely.

Binance's legal team has emphasized that the lawsuit is an attempt by FTX to shift blame away from its own leadership and onto Binance. They argue that the estate is trying to hold Binance accountable for FTX's crash and that the allegations are baseless. The defense also points out that Bankman-Fried was the central figure in "one of the most massive corporate frauds in history" and was sentenced to 25 years in prison for his criminal wrongdoing.

The dispute is part of FTX's broader efforts to recover assets for its creditors, which it owes over $11 billion in repayments. The estate plans to begin major bankruptcy disbursements on May 30. This legal battle highlights the complex web of relationships and transactions between major players in the cryptocurrency industry and the challenges faced by those seeking to recover assets in the aftermath of a major collapse.