CZ Fights Back: Motion to Dismiss FTX Lawsuit

Changpeng Zhao, the founder and former top executive of the

Binance

cryptocurrency exchange, has formally requested the dismissal of a $1.76 billion lawsuit. The lawsuit was lodged by the administrators of the now-bankrupt FTX, targeting Zhao, Binance, and other leading figures at Binance. Zhao’s legal representatives contend that the U.S. judicial system lacks the necessary jurisdiction to preside over him in this particular case, further arguing that the manner in which he was served with the legal papers was flawed.

The
motion,
submitted to the Bankruptcy Court in Delaware on Monday, asserts that the lawsuit is deficient on several procedural and technical grounds. Zhao, who identifies his primary residence as being located in the United Arab Emirates, maintains that the service of the lawsuit against him violated established protocols for serving individuals residing outside of the United States. The document also argues that courts within Delaware lack the authority to exert personal jurisdiction over him, citing his absence of significant connections or involvement within the state.

The submitted legal filing explicitly states, “Mr. Zhao is not subject to legal action in this jurisdiction. Furthermore, the laws that the Plaintiffs are attempting to enforce do not apply to the international transactions outlined within the Complaint.”

It further adds, “Regardless, the claims themselves lack legal basis, and many are completely illogical. Mr. Zhao supports the motions for dismissal submitted by the other Defendants,” referencing similar attempts at dismissal previously filed in July by other executives affiliated with Binance.

The FTX Lawsuit

Zhao is currently defending against a lawsuit
initially filed
in November of 2024 by FTX Digital Markets Ltd. and the FTX Trading estate. The purpose of the suit is to reclaim approximately $1.76 billion in digital assets that were transferred to Binance during July of 2021, as part of a transaction involving the repurchase of equity.

The transaction involved FTX buying back a 20% stake that Binance held within the exchange. The initial partnership between the two entities began back in 2019, when Binance was among the first investors to support FTX. The relationship subsequently deteriorated.

According to the legal complaint, Sam Bankman-Fried orchestrated the buyback using a combination of FTX-created FTT tokens, along with Binance-affiliated assets like BUSD. It has been suggested that those funds were ultimately derived from customer deposits that had been improperly used.

The FTX estate, currently under the direction of a restructuring team, contends that the transfer was carried out fraudulently. They are attempting to recover the assets in order to provide compensation to creditors who suffered losses as a result of FTX’s collapse in 2022.

Zhao’s legal team also asserts in the filing that he never directly received the funds in question.

The motion explicitly states, “Plaintiffs fail to demonstrate that Mr. Zhao was a recipient.” It continues, “They allege that he was merely a nominal party involved in the transfer of BUSD from Alameda LTD to Binance.”

The document emphasizes that Zhao was simply a “nominal signatory,” and not the true beneficiary of the assets.

FTX and Binance

The legal action extends beyond just the repurchase itself, alleging that Zhao played a wider role in causing the instability that led to the downfall of FTX. Specifically, the lawsuit highlights a
tweet
published by Zhao in November of 2022. This particular tweet triggered a mass withdrawal of funds from FTX by its customers, which directly contributed to the exchange’s
collapse.

Caroline Ellison, who formerly held the position of CEO at Alameda Research (an entity affiliated with FTX), testified during the trial of Bankman-Fried that Alameda was forced to
borrow over $1 billion from customer funds
in order to finance the repurchase from Binance. Prosecutors argued that both FTX and Alameda were likely operating in a state of insolvency, even prior to the repurchase.

Bankman-Fried was
sentenced
to 25 years imprisonment in March of 2024 after being convicted of fraud, conspiracy and money laundering.

Zhao himself also
served a four-month sentence
in the United States during the previous year after entering a guilty plea for violating regulations intended to prevent money laundering. This plea was made as part of a broader
$4.3 billion agreement
between Binance and regulators within the United States. He also relinquished his position as the CEO of Binance as a condition of the agreement.