A California resident is suing Binance and its CEO for tweets last November that, according to allegations, led to the collapse of the rival exchange.
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 (FTT), on Nov. 6. The plaintiffs estimated that Binance owned up to 5% of all FTT tokens.
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.”
Afterwards, it began its argumentation with a defense of the Securities and Exchange Commission’s policies on crypto and an 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 had already sold its FTT holdings and the post was “intended to cause the price of FTT in the market to decline.”
Related: New FTX documentary to spotlight SBF–CZ relationship
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.”
Sad day. Tried, but
— CZ Binance (@cz_binance) November 9, 2022
The suit alleges that Zhao’s proposal to acquire FTX was not made in good faith and that the episode would “ultimately lead” to the collapse of FTX:
“Zhao’s tweet resulted in FTT price declining from US 23.1510 to US 3.1468. This significant drop plummeted FTX Entities into bankruptcy without giving an opportunity or chance to FTX Entities’ executives and board of directors a chance [sic] to salvage the situation and put in safe guards to protect its clients and end-users.”
The suit demanded monetary damages, court costs and disgorgement of ill-gotten gains based on seven counts. “Plaintiff believes that there are thousands of members of the proposed class,” the suit stated.
CZ just executed the most gangster play we've seen in Crypto, ever, period. The BALLS on this man. Truly -- bravo.
— Autism Capital (@AutismCapital) November 8, 2022
Also bravo to Sam to choose the correct option that protects customer assets, swallow his pride, and not burn everything down in an unnecessary fight.
WHAT A SHOW!
As the suit noted, both Binance and FTX are currently subject to SEC actions. The criminal case against Bankman-Fried will begin on Oct. 4 in New York. Zhao addressed potential accusations of unfair competition in the same tweet that is cited in the suit. “Regarding any speculation as to whether this is a move against a competitor, it is not,” he wrote.
His statement did not stop speculation to that effect within the crypto community, however. The CEOs of the crypto exchanges traded jibes on then-Twitter for weeks afterward.
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