Binance’s Zhao Challenges $1.76 Billion FTX Clawback Suit Over Jurisdiction and Offshore Structure

Binance founder Changpeng Zhao is challenging a $1.76 billion clawback lawsuit brought by the bankruptcy estate of FTX, arguing that a Delaware court lacks jurisdiction over the alleged 2021 share repurchase transaction [1]. The case, which centers on a complex cross-border transfer of crypto assets involving Alameda Research, FTT, BNB, and BUSD tokens, has escalated into a high-stakes legal battle with broader implications for the crypto industry [1]. FTX Digital Markets Ltd. claims that the repurchase was funded with customer deposits during a period when Alameda was insolvent, violating U.S. bankruptcy law and constituting both constructive and intentional fraud [1].

Zhao filed a motion in Delaware bankruptcy court on August 4, 2025, seeking to dismiss the claim against him on the grounds that he resides in the UAE and is not subject to the court’s jurisdiction [1]. He argues that the structure of the transaction—executed through offshore entities based in the Cayman Islands, Ireland, and the British Virgin Islands—renders it outside the scope of U.S. law [1]. Zhao also contends that the FTX estate is misapplying safe-harbor protections that typically shield securities transactions from clawback, further weakening its legal position [1].

FTX’s filing paints a different picture, asserting that the transaction was part of a broader scheme orchestrated by Sam Bankman-Fried to misappropriate customer assets. Caroline Ellison, a former FTX executive, testified that Alameda lacked the financial resources to execute the repurchase and proceeded despite knowing it would deplete customer deposits. Bankman-Fried, who is now serving a 25-year prison sentence for fraud, reportedly pushed the deal forward regardless of the legal and financial risks [1].

The case represents a pivotal moment in the aftermath of FTX’s collapse, which wiped out over $8 billion in customer funds. As part of a broader effort to recover assets and restore value for creditors, the FTX trust has initiated multiple legal actions against former executives and third-party partners [1]. Zhao, who has prior legal issues including a four-month U.S. prison sentence for anti-money laundering violations, now faces renewed scrutiny over his involvement in the contested transaction [1].

The legal dispute highlights the challenges of enforcing U.S. bankruptcy law in the context of global crypto transactions. With the industry increasingly operating outside traditional financial systems and jurisdictions, the outcome of this case could set a precedent for how courts handle similar claims in the future [1]. If the Delaware court rules in Zhao’s favor, it could limit the reach of U.S. bankruptcy law in cross-border crypto disputes. Conversely, a ruling for FTX’s estate would reinforce the U.S. legal system’s ability to pursue assets and liabilities in offshore transactions tied to alleged fraud [1].

The case also underscores the broader regulatory and legal scrutiny facing major crypto players. As governments and courts continue to grapple with the unique risks and opportunities presented by digital assets, high-profile litigation involving Binance, FTX, and their executives will likely shape the evolving legal framework for the crypto industry [1].

Source: [1] Delaware : Law360 : Legal News & Analysis (https://www.law360.com/delaware)