A class action lawsuit filed in California alleges that Binance and its CEO, Changpeng Zhao, are unfair competition and manipulating the market to cause the downfall of rival exchange FTX.
The lawsuit was filed by a FTX user who lost assets when the company collapsed and filed for bankruptcy last month. Binance, which owned 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 told the court that in 2019 Binance had invested in FTX's FTT token and owned up to 5% of the total FTT supply. On Nov. 6, CZ declared that Binance would sell its remaining FTT owing to'recent revelations', causing FTT to drop 14% in 24 hours. Binance said it had already sold 23 million FTT worth $530 million the day before Zhao's tweet.
The suit alleges that CZ misled the market to lead to a drop in FTT and weaken confidence in rival FTX. The company alleges that tweets by CZ about Binance signing a nonbinding letter of intent to acquire FTX were also misleading, temporarily halting FTT's slide. CZ said on Monday that Binance would not buy FTX, 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. Binance said it employed tactics such as 'bait and switch' tactics to accelerate FTX's collapse after Binance sold its FTT stake.
The suit seeks damages for FTX users who cannot access their money and disgorgement of Binance's alleged ill-gotten gains from benefitting at FTX's expense. Binance's market share has skyrocketed since its biggest rival, whom it says has lost control of the company.
Binance and CZ have not responded to the lawsuit. The case illuminates the continuing lack of regulatory clarification surrounding cryptocurrencies as disputes occur in the courts.