Class action lawsuit accuses Binance, CZ of manipulating market to destroy FTX

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Class action lawsuit accuses Binance, CZ of manipulating market to destroy FTX

A class action lawsuit filed in California on Oct. 2 alleges that Binance and its CEO, Changpeng Zhao, are unfair competition and manipulating the market to cause the downfall of rival exchange FTX.

The suit was filed by a FTX user who lost assets when FTX collapsed and filed for bankruptcy last month. Binance, which held a controlling interest in FTX's FTT token, made false public statements about selling that stake, causing FTT's price to decrease, then made misleading statements about intending to acquire FTX, temporarily stabilizing FTT's price before again declining an acquisition.

Binance also said it had invested in FTX's FTT token in 2019 and held up to 5% of the total FTT supply. On Nov. 6, CZ tweeted that Binance would sell its remaining FTT due to'recent revelations', causing FTT to drop 14% in 24 hours. Binance's lawsuit alleges that the two companies had already sold 23 million FTTs worth $530 million the day before Zhao's tweet.

The suit claims CZ misled the market to cause a decline in FTT and weaken confidence in rival FTX. It further alleges that tweets by CZ on November 7 about Binance signing a nonbinding letter of intent to acquire FTX were also misleading, temporarily halting FTT's slide. The next day, CZ announced Binance would not take over FTX after all, sending FTT plunging again and forceing FTX into bankruptcy.

Binance and CZ allege unfair competition, market manipulation, fraudulent practices, and false statements, asserting that their actions were driven by animosity toward FTX and its founders' lobbying for greater crypto regulation. It contends Binance used tactics like 'bait and switch' tactics to accelerate FTX's collapse after Binance sold its FTT stake.

The case seeks damages for FTX users unable to access their money and for disgorgement of Binance's alleged ill-gotten gains from benefiting at FTX's expense. Binance claims its market share has significantly increased since its departure from its key rival.

Binance and CZ have not responded to the lawsuit. The case demonstrates the continuing lack of regulatory clarification surrounding cryptocurrencies as disputes occur in the courts.