Class-action Suit Filed Against Binance For Alleged Harm To FTX Before Its Collapse

A class-action suit was filed against Binance.US and Binance CEO Changpeng Zhao on Oct. 2 in the District Court of Northern California alleging various violations of federal and California law on unfair competition for attempting to monopolize the cryptocurrency market by harming its competitor FTX. The suit was brought by Nir Lahav, who is identified only as a California resident.

At issue are posts made by Zhao on Twitter (now X) in early November on the eve of FTX’s collapse. The posts were made in conjunction with the decision by the defendants to liquidate their holdings in the FTX utility token FTT on Nov. 6. The plaintiffs estimated that Binance owned up to 5% of all FTT tokens.

Suit filed against Binance and Changpeng Zhao. Source: CourtListener

The following day, Zhao stated in a Twitter post that Binance had signed a letter of intent to acquire FTX, but it backed out of that deal one day later. According to the suit:

“Zhao publicly disseminated this information [on the withdrawal of the acquisition offer] on twitter and other social media platforms to hurt FTX Entities that ultimately lead to a rushed and unprecedented collapse of FTX Entities.”

After began its argumentation with a defense of the Securities and Exchange Commission’s (SEC) policies on crypto and invocation of the Supreme Court’s Howey and Reves decisions, among others.

As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4

— CZ Binance (@cz_binance) November 6, 2022

It went on to claim that Zhao’s Nov. 6 tweet, “Due to recent revelations that have came [sic] to light, we have decided to liquidate any remaining FTT on our books,” was false and misleading, since Binance has already sold its FTT holdings, and the post was “intended to cause the price of FTT in the market to decline.”

The plaintiffs found evidence for their claim in the same post by Zhao, where he wrote, “We are not against anyone. […] But we won’t support people who lobby against other industry players behind their backs.” The plaintiffs took the latter sentence to indicate that Binance opposed FTX CEO Sam Bankman-Fried’s “regulatory efforts.”