Binance, CZ Sued For Allegedly Initiating Collapse Of Bankman-Fried's FTX

Binance Holdings and its CEO Changpeng Zhao (CZ) have been accused of allegedly violating securities and competition laws by attempting to monopolize the cryptocurrency exchange market and playing a part in the spectacular collapse of its rival, FTX Derivatives Exchange, co-founded by Sam Bankman-Fried.

Nir Lahav, a cryptocurrency investor, filed a class-action lawsuit against Binance and Zhao on Monday for allegedly violating the Securities and Exchange Act, as well as the California Unfair Competition Law, in the U.S. District Court for the Northern District of California.

According to the suit, Binance, currently the world's largest centralized crypto exchange platform by trading volume, manipulated the market to trigger the collapse of FTX, the Bahamas-based crypto exchange platform.

The plaintiff's argument centers on Zhao's tweets from November 2022, including one from Nov. 6 wherein the Binance CEO shared the company's decision to sell all of its remaining FTT holdings over a "recent revelation." Binance in 2019 invested in FTX tokens (FTT) and held around 5% of the token's overall supply.

The lawsuit claimed the information shared by Zhao was misleading and had a malicious undertone as the crypto exchange had already started offloading its FTT holdings even before CZ made the announcement on X (formerly Twitter), which led to a drop in the value of FTT.

"On Sunday, November 6, 2022, Zhao tweeted, 'Due to recent revelations that have come [sic] to light, we have decided to liquidate any remaining FTT on our books.' This statement was false and misleading because Binance had already sold and moved 23 million FTT (worth approximately $530 million) before making this statement. This statement was intentionally misleading and intended to cause the price of FTT in the market to decline," the lawsuit read.

Moreover, the lawsuit accused Zhao of baiting the market by tweeting that Binance had signed a non-binding letter of intent to fully acquire FTX. But a day later, he allegedly said the company had pulled back from the deal because of some information it gathered about FTX.

"Zhao realizing his power over the market and the influence his tweets had on the price of FTT, decides to play the market some more. In an attempt to bait the market, Zhao tweets a proposal of acquiring FTX Entities. On Tuesday, November 7, 2022, Zhao tweeted, 'There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent], intending to fully acquire FTX.com.' On information and belief and inference based on subsequent actions, Zhao never had a good faith intention to actually acquire FTX Entities," the lawsuit read.

"On Wednesday, November 8, 2022, with the market perception that Zhao and Binance are armed with confidential information, Zhao suddenly pulled back with an emoji of tears, clearly crocodile tears, under the circumstances," it added.

Bankman-Fried, the former CEO of FTX, is currently in detention and his fraud trial started Tuesday.