In a dramatic turn of events within the cryptocurrency sphere, collapsed digital exchange FTX has initiated legal proceedings against Binance and its former chief executive Changpeng Zhao, seeking $1.8 billion over what they claim was a “fraudulent” share arrangement.
The legal dispute centres on a July 2021 transaction where Binance, alongside Zhao and other executives, divested their approximate 20 per cent ownership in FTX. The deal, valued at $1.76 billion, was executed through cryptocurrency tokens as part of a repurchase agreement with founder Sam Bankman-Fried.
Documents filed in Delaware on Sunday reveal administrators of the FTX estate contending that both FTX and its sister trading organisation, Alameda Research, were potentially insolvent from their inception. The filing emphasises their definite balance-sheet insolvency by early 2021, arguing the transaction should never have occurred.
The timing of this legal action is particularly noteworthy, as it follows significant developments for key figures involved. Bankman-Fried currently serves a 25-year prison sentence for fraud, whilst Zhao, who resigned from Binance in April, recently completed a four-month imprisonment after admitting to inadequate money laundering control implementation.
Binance has responded defiantly to the allegations, stating: “The claims are meritless, and we will vigorously defend ourselves.” This legal confrontation marks the latest development in an ongoing rivalry between two of the world’s largest cryptocurrency exchanges, as FTX continues its efforts to address outstanding debts following its catastrophic 2022 collapse.
The ramifications of this legal battle extend beyond the immediate participants, potentially influencing the broader cryptocurrency market and setting precedents for future industry dealings. The outcome could significantly impact the ongoing restructuring of FTX and its ability to compensate creditors.
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