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Class-action suit filed against Binance for alleged harm to FTX before its collapse

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.

Class-action suit filed against Binance for alleged harm to FTX before its collapse

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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 on Nov. 6. The plaintiffs estimated that Binance owned up to 5% of all FTT tokens.

Class-action suit filed against Binance for alleged harm to FTX before its collapse

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:

After began its argumentation with a defense of the Securities and Exchange Commission’s (SEC) policies on crypto and invocation of the Supreme Court’s Howey and Reves decisions, among others.

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 has already sold its FTT holdings, and the post was “intended to cause the price of FTT in the market to decline.”

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.”

The suit alleges that Zhao’s proposal to acquire FTX was not made in good faith and the episode would “ultimately lead” to the collapse of FTX:

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.

As the suit noted, both Binance and FTX are currently subject to SEC actions. The criminal case against Bankman-Fried will begin 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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