Binance & CZ Sued For Inducing FTX FUD
3 Oct 2023 by Rory Kejzerko 3 min read
Binance & CZ Sued For Inducing FTX FUD

Although already dealing with a plethora of bearish circumstances, Binance’s infamous CEO Changing Zhao (CZ) is now facing a class-action lawsuit from a California resident called Nir Lahav.

The action relates to CZ’s role in the rapid demise of FTX back in November 2022, and how his tweets in the immediate lead-up to the collapse are alleged to have purposefully catalysed FUD and narrowed-down the now-defunct CEX’s bailout options.   

The Class-Action Lawsuit 

The class-action suit was filed against Binance.US and CZ in the District Court of Northern California on October 2nd. 

It refers to various alleged violations of federal and Californian laws that fall under the grounds of unfair competition. More deeply, these violations allege that Binance attempted to monopolise the crypto market by purposely harming the reputation of its fellow CEX (although we believe ‘to strengthen an even smaller oligopoly’ to be a more fitting way of putting it). 

To do so, CZ had been his usual outspoken self across Twitter in the days leading up to FTX’s bankruptcy filing - where as a reminder, Binance was poised to acquire FTX at one point in time after SBF had ‘asked for help’. 

As quickly became evident, such takeover never came to fruition as CZ decided to pull-out of the offer just one day later. 

Interestingly, the proposed deal came after a multiple-week social media spat between the two crypto CEOs, wherein CZ had actively raised doubts over the financial legitimacy of FTX and Alameda Research. 

And more pivotally, this was also accompanied by CZ publicly offloading Binance’s 23 million holding of FTX’s native FTT ($FTT) token, which further catalysed the (albeit inevitable) FTX FUD. 

Here is where CZ allegedly slipped up, as although stating that “due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books,” this has been deemed false and misleading as the firm had reportedly already sold all of its FTT tokens (which collectively accounted for 5% of FTT’s total supply). 

If true, then such aforementioned words can be deemed nothing but a PYOP that aimed to damage FTX investor sentiment. 

In bolstering the argument for CZ’s alleged liability, the plaintiff’s also referred to a statement made by the CEO wherein he said that “we won’t support people who lobby against other industry players behind their backs”. As you may already know, such statement was undoubtedly aimed at SBF and his efforts (sometimes of the fundraising accord) to get FTX-favourable regulations passed in the USA. 

In turn, this is what the lawsuit specifically had to say about CZ’s Twitter antics:

“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.”

With regards to the compensation Lahav wants from the seven counts (not just for himself but ‘thousands’ of others), these include monetary damages, court costs, and disgorgement of ill-gotten gains.  

CZ is yet to publicly respond to the lawsuit, which we can assume may be because he already has enough on his plate regarding Binance’s ongoing investigation from the SEC:

That being said, CZ alluded to the potential of these accusations arising when actually making the tweets almost one year ago, as he said “regarding any speculation as to whether this is a move against a competitor, it is not” (...although this won’t be much of a defence in court). 

With SBF’s all-important criminal trial penned-in for tomorrow in New York, it will be interesting to see whether the lawsuit gets a mention, and/or it will have any bearing on the judgement made. 

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This article is intended for educational purposes and is not financial advice.