Class action filed against Binance, CZ over FTX collapse

Class action filed against Binance, CZ over FTX collapse

A class action lawsuit filed on Oct. 2 in California federal court accusing Binance and its CEO Changpeng Zhao of unfair competition and manipulating the market to trigger the downfall of rival exchange FTX.

The lawsuit was filed by an 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 decline, then made misleading statements about intending to acquire FTX before temporarily stabilizing FTT's price before again declining an acquisition.

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

The lawsuit claims that CZ misled the market to lead to a decline in FTT and weaken confidence in rival FTX. The FTT alleges that tweets by CZ on Nov. 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 that Binance would not acquire FTX after all, sending FTT plunging again and force 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 claims Binance engaged in 'bait and switch' tactics to Accelerate FTX's collapse after Binance sold its FTT stake.

The lawsuit seeks compensation for FTX users unable to access their funds and disgorgement of Binance's alleged ill-gotten gains from benefitting at FTX's expense. Binance claims its market share has increased significantly since losing its main rival.

Binance and CZ haven't said how much they are going to comment on the lawsuit. The case raises questions about the lack of regulatory clarification around cryptocurrencies as disputes occur in the courts.