Binance faces class action lawsuit for alleged role in FTX collapse

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The class action lawsuit filed by a California resident against Binance and its CEO, Changpeng Zhao, has sent shockwaves through the cryptocurrency world. Allegations of market manipulation and unfair competition, centred on Zhao’s tweets, have sparked a legal battle with far-reaching implications.

A class action lawsuit alleges Binance’s role in FTX’s collapse: a deep dive into the legal landscape

In a shocking twist, Binance and its CEO, Changpeng Zhao, found themselves embroiled in a class action lawsuit filed by California resident Nir Lahav. 

The lawsuit, filed in the Northern California District Court on 2 October, alleges that Binance’s actions, in particular Zhao’s tweets, played a key role in the collapse of rival exchange FTX

This legal saga unravels a complex web of allegations and legal intricacies in the ever-changing world of cryptocurrency. This article delves into the details of the case, examining the technicalities and implications of this legal battle.

At the heart of the lawsuit are tweets posted by Changpeng Zhao in early November, which coincided with Binance’s decision to liquidate its holdings of the FTX utility token, FTT. The plaintiffs estimate that Binance held up to 5% of all FTT tokens. 

Zhao’s tweets included statements about Binance’s intention to acquire FTX, which were later retracted. According to the lawsuit, these actions had a negative impact on FTX, leading to a sudden and unprecedented collapse.

The plaintiffs allege that Zhao’s tweets were intended to harm the FTX companies and ultimately caused their collapse. They allege that Zhao’s tweet of 6 November, in which he stated:

“Because of the recent revelations that have come to light, we have decided to liquidate any remaining FTT in our books”,

was misleading because Binance had already divested its stake in FTT. 

This, they claim, was a deliberate attempt to manipulate the market and drive down the price of FTT.

Legal arguments and implications

The lawsuit relies on well-established legal precedents in the cryptocurrency industry, citing Securities and Exchange Commission guidelines and Supreme Court decisions such as the Howey and Reves rulings. 

It alleges that Zhao’s proposal to acquire FTX was not made in good faith and that this episode set in motion a chain of events that ultimately led to FTX’s bankruptcy.

The complaint contains seven counts and seeks damages, court costs and disgorgement of ill-gotten gains. The prosecution claims that potentially thousands of people could be part of the proposed class.

This legal battle comes as both Binance and FTX have been the subject of SEC actions. Sam Bankman-Fried, the CEO of FTX, is facing a criminal trial scheduled to begin on 4 October in New York.

In response to accusations of unfair competition, Zhao said in one of the tweets cited in the lawsuit that it was not a move against a competitor. 

However, the cryptocurrency community has continued to speculate on the motives behind these actions, with the CEOs of both exchanges publicly sparring on Twitter.

Conclusion

The class action lawsuit against Binance and Changpeng Zhao is a reminder of the tangled legal terrain that runs through the cryptocurrency industry. 

Allegations of market manipulation, unfair competition and the use of social media as a tool to influence markets are at the heart of this legal battle. 

As the case unfolds, more light will undoubtedly be shed on the regulatory challenges and legal boundaries that characterise the cryptocurrency landscape, giving both industry players and regulators much to ponder.