Binance Files Motion to Dismiss $1.76B Lawsuit From FTX Estate

input: Binance has filed a motion to dismiss a $1.76 billion lawsuit brought by the FTX estate, accusing the defunct crypto exchange of trying to deflect blame

Binance has filed a motion to dismiss a $1.76 billion lawsuit brought by the FTX estate, accusing the defunct crypto exchange of trying to deflect blame for its own failure.

The lawsuit, filed in May 2023, claims that Binance participated in a 2021 buyback deal for shares in FTX, which was improperly funded with customer assets.

However, Binance’s legal team argued in its motion, filed on May 16 at the Delaware Bankruptcy Court, that the suit is “legally deficient” and that FTX’s collapse was not triggered by market manipulation or hostile action.

Instead, the filing stated that the crypto exchange’s downfall was due to internal misconduct, which ultimately led to Sam “SBF” Bankman-Fried’s conviction on seven counts of fraud and conspiracy.

“Plaintiffs are pretending that FTX did not collapse as the result of one of the most massive corporate frauds in history,” the motion said.

Pointing to the fact that FTX remained a going concern for 16 months after the share repurchase and that there was “no plausible claim” the exchange was insolvent at the time, Binance’s team added: “The Complaint fails to state a claim on which relief can be granted.”

Related: Binance wants arbitration for all members of securities class suit

Zhao’s tweet and FTT crash

The lawsuit also accuses former Binance CEO Changpeng Zhao of triggering a cascade that led to FTX’s downfall through a tweet on Nov. 6, 2022 announcing the liquidation of FTT tokens.

In response, Binance argued that Zhao’s tweet was based on publicly known concerns. “Binance’s decision to liquidate its remaining FTT was, in fact, ‘due to recent revelations’ — in particular, the Nov. 2, 2022, CoinDesk article” that exposed Alameda Research’s balance sheet.

The company further defended Zhao’s comment that Binance would aim to minimize market impact. “The Complaint contains no such facts” to prove Binance had no intention of following through.

In challenging the court’s jurisdiction, Binance said none of the foreign entities named — including Binance Holdings, Binance.com and Binance Chain — “are incorporated in or maintain their principal place of business in the United States,” and thus fall outside the court’s reach.

The filing also criticizes the plaintiff’s narrative as “a grab bag of state law claims” based on “pure conjecture — much of it sourced from a convicted fraudster’s hindsight speculation.”

Binance has asked the court to dismiss all claims with prejudice. The FTX estate has not yet filed its response.

Related: FTX EU creditors can now withdraw money from Backpack exchangeFTX to disburse $5 billion in second round of creditor repayments

FTX is set to begin its second round of repayments to creditors more than two years after filing for bankruptcy.

In a May 15 notice, the FTX Recovery Trust announced that over $5 billion will be distributed starting May 30 through BitGo and Kraken, targeting parties in the second eligible group under the exchange’s reorganization plan.

The plan categorizes five creditor groups in order of priority, with the first group including secured lenders and the U.S. Bankruptcy Court.

After the secured lenders were paid in full in December 2022, the FTX Recovery Trust began disbursing funds to the second group — holding claims for customer cryptocurrency balances— in March.

The payout to the second group will include 54% of allowed claims, while creditors in the third group, holding claims for U.S. dollar balances, are expected to receive 120% of their claims.

The fourth group, which includes claims arising from employment, property and services, will receive 78% of allowed claims. Finally, the fifth group, encompassing claims for securities, will obtain 98% of their claims.

According to the plan, each group’s creditors will be paid pro rata if the total claim amount exceeds the available funds.

In total, FTX may repay up to $16 billion, depending on the final number of valid claims.

The claims recovery percentages were set in the plan to maximize the value that will be returned to creditors.

The FTX bankruptcy case began in November 2022 when the exchange filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.

The bankruptcy was triggered by FTX’s inability to meet customer withdrawal requests due to mishandled funds and internal misconduct, eventually leading to the arrest and conviction of former CEO Sam Bankman-Fried on seven counts of fraud and conspiracy.