Former Binance CEO Changpeng Zhao has asked the court to dismiss a lawsuit by FTX that seeks to recover nearly $1.8 billion from a deal between Binance and FTX, which the defunct exchange claims was fraudulently transferred.
Zhao told a Delaware bankruptcy court that the suit looks to “nonsensically blame” him for the actions of Sam Bankman-Fried, FTX’s founder, who was jailed for 25 years after a high-profile fraud trial.
Zhao, a resident of the United Arab Emirates, argued that the suit’s claims “are so far removed” from the US that “the statutes at issue, which lack extraterritorial application, do not even apply.”
FTX sued Zhao, Binance and other then-executives in November, claiming that FTX fraudulently transferred around $1.8 billion in crypto to Binance in 2021 to buy back shares that the exchange had purchased.
FTX, now under the control of a team of lawyers looking to maximize creditor returns, said the exchange and Bankman-Fried knew it couldn’t bankroll the share repurchase, so they used customer funds to get the deal done.
Zhao says he wasn’t part of the transfers
Zhao argued that “every pertinent part” of the share repurchase deal happened outside the US, as the Binance entities involved are based in Ireland, the Cayman Islands, and the British Virgin Islands (BVI), and the FTX-linked firm, Alameda Ltd, was also based in the BVI.
He added the deal used cryptocurrency, namely Binance USD (BUSD), a stablecoin created by the exchange, and FTX Token (FTT), which was created by FTX.
“Plaintiffs do not alleged that Mr. Zhao received or possessed dominion over the exchanged cryptocurrency,” his lawyers argued.
They added that Zhao “was not a transferee” but was “merely a ‘nominal counterparty’ in the transfer.”
Posts didn’t add to FTX downfall, says Zhao
Zhao argued that his X posts regarding FTX and Binance’s sale of FTT tokens did not contribute to the crypto exchange’s collapse as the company has alleged.
After CoinDesk reported in November 2022 that FTX’s holdings were mostly made up of FTT, Zhao posted to X that Binance was selling its FTT holdings.
FTX claimed this was a calculated attempt to spark customer withdrawals and sink the company.
Zhao also posted to X that Binance would look to buy FTX and cover its shortfall, but quickly bailed out of buying the firm.
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However, Zhao said in his motion that his posts didn’t add to a run on FTX and its collapse as the company “was a fraudulent enterprise.”
“Even if Mr. Zhao’s social media posts contributed to the timing of the FTX downfall, FTX had no right to exist and certainly no right to persist in fraud indefinitely.”
“To hold Mr. Zhao liable for FTX’s implosion would be no different than holding a whistleblower liable for the Ponzi scheme she exposed, on the theory that her exposure caused ‘the proverbial run on the bank,’” his lawyers argued.
Binance also sought dismissal
In May, Binance sought to dismiss FTX’s lawsuit, arguing it was “legally deficient,” and that FTX’s collapse was solely because it was “one of the most massive corporate frauds in history.”
FTX also sued two former Binance executives, ex-chief compliance officer Samuel Wenjun Lim and Dinghua Xiao, who worked in various roles. Both asked the court last month to dismiss the suit.
Zhao served four months in prison last year after pleading guilty to money laundering. Bankman-Fried was sentenced to 25 years in prison in March 2024 for his role in FTX’s fraud. He has appealed the conviction and a hearing is set for November.
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