Class action filed against Binance, CZ over FTX collapse

Class action filed against Binance, CZ over FTX collapse

A class action lawsuit has been filed in California federal court alleging that Binance and its CEO, Changpeng Zhao, are unfair competition and manipulating the market to trigger the downfall of rival exchange FTX.

FTX users lost assets when FTX collapsed and filed for bankruptcy last month. Binance, which held a holding interest in FTX's FTT token, made false public statements about selling that stake, leading to FTT's price to decline, then made misleading statements about intending to acquire FTX, temporarily stabilizing FTT's price before again declining an acquisition.

Binance said 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 said Binance would sell the remaining FTT due to'recent revelations', causing FTT to drop 14% in 24 hours. Binance's suit claims that the site had already sold 23 million FTT worth $530 million the day before Zhao's tweet.

The suit claims that CZ misled the market to lead to a decline in FTT and weaken confidence in rival FTX. CZ tweets on Nov. 7 regarding Binance signing a nonbinding letter of intent to acquire FTX were also misleading, temporarily halting FTT's slide. The next day, CZ tweeted that Binance would not take on FTX after all, prompting FTT plunging again and forced 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. After Binance sold its FTT stake, it alleges, Binance used tactics like 'bait and switch' tactics to accelerate FTX's collapse.

The suit seeks damages for FTX users unable to access their money and disgorgement of Binance's alleged ill-gotten gains from benefitting at FTX's expense. Binance's market share has surged significantly since it has been eliminated from the company's main rival.

Binance and CZ have not responded to the lawsuit. The case shows the ongoing lack of regulatory transparency in cryptocurrencies as disputes occur in the courts.