Binance and CEO Face Lawsuit in Relation to FTX’s Collapse
A class-action lawsuit unfolds amidst allegations of unfair competition, spotlighting the rivalry between cryptocurrency exchanges Binance and FTX.
On October 2, a class-action lawsuit was filed against Binance.US, Binance CEO Changpeng Zhao, and other relevant parties in the District Court of Northern California. The lawsuit, initiated by a California resident named Nir Lahav, alleges various violations of federal and California law concerning unfair competition, accusing Binance and Zhao of attempting to monopolize the cryptocurrency market to the detriment of competitor FTX.
Central to the lawsuit are the actions and communications made by Zhao on social media platforms, particularly on Twitter (now X) during early November, precisely on the eve of FTX’s financial debacle. These communications coincided with a decisive move by the defendants to liquidate their holdings in FTX’s utility token, FTT, on November 6.
The plaintiffs argue that Zhao’s statement on November 6, regarding the liquidation of remaining FTT on Binance’s books, was misleading and false. They assert that Binance had already offloaded its FTT holdings, suggesting that the communication was aimed at driving the token’s market price down.
https://twitter.com/cz_binance/status/1589283421704290306
The fallout was indeed significant; FTT’s price plummeted from US $23.1510 to US $3.1468, propelling FTX towards bankruptcy. This price drop left FTX’s management with inadequate time to implement necessary safeguards for its clients and end-users. The situation escalated when Zhao aired Binance’s intention to acquire FTX publicly. However, within a day, Binance retracted the offer, a development promptly shared by Zhao on social media.
The lawsuit contends that this public retraction was orchestrated to inflict financial harm on FTX, subsequently leading to a rushed and unprecedented collapse of the exchange. The lawsuit now seeks monetary damages, court costs, and disgorgement of alleged ill-gotten gains.
This legal confrontation unfolds against a broader backdrop of regulatory scrutiny within the cryptocurrency sector. Both Binance and FTX are currently subject to actions by the Securities and Exchange Commission (SEC). The criminal case against former FTX CEO Sam Bankman-Fried is slated to begin on October 4 in New York.
The unfolding legal drama underscores the high stakes involved in the rapidly evolving cryptocurrency market, spotlighting the intense competition, regulatory challenges, and the significant impact of social media on market dynamics. As Binance and Zhao brace for the legal battle ahead, the crypto community awaits with bated breath, understanding that the outcome could set a significant precedent in the industry.
