Adversary case 24-50222. Complaint by FTX Trading Ltd., Alameda Research LLC, Alameda Research Ltd., West Realm Shires Inc., West Realm Shires Services Inc., Clifton Bay Investments LLC, Cottonwood Grove Ltd., Euclid Way Ltd., Paper Bird Inc., FTX Digital Markets, Ltd. against Binance Holdings Limited, Binance Capital Management Co. Ltd., Binance Holdings (IE) Limited, Binance (Services) Holdings Limited, Changpeng Zhao, Dinghua Xiao, Samuel Wenjun Lim, Does 1-1000. Fee Amount $350 (13 (Recovery of money/property - 548 fraudulent transfer)),(14 (Recovery of money/property - other)),(02 (Other (e.g. other actions that would have been brought in state court if unrelated to bankruptcy))). (Schlauch, Brendan)
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Page 1 IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re
Chapter 11
FTX TRADING LTD., et al.,1
Case No. 22-11068 (JTD)
Debtors.
(Jointly Administered)
FTX TRADING LTD., ALAMEDA
RESEARCH LLC, ALAMEDA RESEARCH
LTD., WEST REALM SHIRES INC., WEST
REALM SHIRES SERVICES INC.,
CLIFTON BAY INVESTMENTS LLC,
COTTONWOOD GROVE LTD, EUCLID
WAY LTD, PAPER BIRD INC., FTX
DIGITAL MARKETS, LTD.2
Adv. Pro. No. 24-_____ (___)
Plaintiffs,
- against BINANCE HOLDINGS LIMITED.,
BINANCE CAPITAL MANAGEMENT CO.
LTD, BINANCE HOLDINGS (IE)
LIMITED, BINANCE (SERVICES)
HOLDINGS LIMITED, CHANGPENG
ZHAO, DINGHUA XIAO, SAMUEL
WENJUN LIM, and DOES 1-1000
Defendants.
COMPLAINT
Plaintiffs in the above-captioned adversary proceeding bring this complaint (the
“Complaint”) through the undersigned counsel and allege as follows:
1
2
The last four digits of FTX Trading Ltd.’s and Alameda Research LLC’s tax identification number are 3288
and 4063 respectively. Due to the large number of debtor entities in the above-captioned chapter 11 cases, a
complete list of the Debtors’ last four digits of their federal tax identification numbers is not provided herein,
but may be obtained on the website of the Debtors’ claims and noticing agent at
https://cases.ra.kroll.com/FTX.
FTX Digital Markets Ltd. (in Official Liquidation) was incorporated in the Commonwealth of The Bahamas
as an International Business Company, registered number 207269B.
RLF1 31855749v.1Page 2 NATURE OF THE ACTION
1.
In one sense, the story of FTX is well known. Once a rising star in the crypto
universe, FTX collapsed under the weight of the many material errors committed by its
founder, Sam Bankman-Fried (“Bankman-Fried”), and other FTX insiders, ultimately filing
for bankruptcy protection in November 2022. Less well known, however, is that BankmanFried’s pervasive malfeasance began long before it was discovered. Indeed, unbeknown to its
customers and creditors, based on a proper accounting of its assets and liabilities, the debtors
in these chapter 11 cases (the “Debtors”) may have been insolvent from inception and certainly
were balance-sheet insolvent by early 2021. Because of its insolvency, the Debtor Plaintiff’s
July 2021 transfer of at least $1.76 billion worth of cryptocurrency to its equity holder Binance
and certain Binance executives, in the form of a share repurchase, was a constructive fraudulent
transfer based on a straightforward application of Section 548(a)(1)(B) of the Bankruptcy
Code. Moreover, because the transfer was made in furtherance of Bankman-Fried’s scheme
described herein, it was also an intentional fraudulent transfer under Section 548(a)(1)(A) of
the Bankruptcy Code.
2.
Binance (as defined herein), founded in 2017 by Changpeng Zhao is today the
largest cryptocurrency exchange in the world by trading volume, with more than $100 trillion
in all-time trade value. While indisputably successful, Binance and Zhao achieved their
success in large part due to their patent disregard for, and affirmative violations of, the laws of
the United States. In 2023, Binance pleaded guilty to failing to implement anti-money
laundering and sanctions compliance policies, which, according to the United States Treasury
Secretary, “allowed money to flow to terrorists, cybercriminals, and child abusers through its
platform.” Zhao himself pleaded guilty to failure to implement anti-money laundering policies
and was sentenced to four months in prison.
2Page 3 3.
Binance first acquired an equity stake in FTX in November 2019, when
Bankman-Fried sold 20% of his newly-minted international crypto exchange—FTX.com—
owned by FTX Trading (as defined herein), to what was then one of his largest competitors.
Binance purchased its stake in FTX Trading with 1,002,739 of Binance’s exchange token,
BNB. A little over a year later, Bankman-Fried expanded his cryptocurrency business into the
United States, under the umbrella of a parent company called WRS (as defined herein). In or
about February 2020, Binance Executives acquired a 18.4% stake in WRS for just two dollars.
4.
As discussed in more detail herein, Binance exited its investment in FTX in
2021. As Zhao would later remark, he decided to exit his position in FTX because of personal
grievances he had against Bankman-Fried. In July 2021, the parties negotiated a deal whereby
FTX bought back Binance’s and its executives’ entire stakes in both FTX Trading and WRS.
Pursuant to that deal, FTX’s Alameda Research division directly funded the share repurchase
with a combination of FTT (FTX’s exchange token), BNB (Binance’s exchange token), and
BUSD (Binance’s dollar-pegged stablecoin). In the aggregate, those tokens had a fair market
value of at least $1.76 billion.
5.
But Alameda was insolvent at the time of the share repurchase and could not
afford to fund the transaction. Indeed, as Bankman-Fried’s second-in-command, Caroline
Ellison, would later testify, she contemporaneously told Bankman-Fried “we don’t really have
the money for this, we’ll have to borrow from FTX to do it.” According to Ellison’s testimony,
Alameda spent about $1 billion of FTX Trading’s capital received from depositors to fund the
repurchase.
Ellison further testified that Bankman-Fried dismissed her concerns about
financial resources, telling her that, notwithstanding the need to use customer deposits, the
repurchase was “really important, we have to get it done.” Indeed, as discussed below, one of
the reasons Bankman-Fried viewed the transaction as “really important” was precisely because
of his desire to conceal his companies’ insolvency and send a false signal of strength to the
3Page 4 market. In connection with the share repurchase, Bankman-Fried was asked directly by a
reporter whether Alameda funded the entire repurchase using its own assets, expressing
surprise that Alameda could have done so given the purchase price and what was publicly
known regarding Alameda’s financial resources. In response, Bankman-Fried falsely stated:
“The purchase was entirely from Alameda. Yeah, it had a good last year :P” (i.e., an emoji for
a tongue sticking out). Of course, as is now known, Bankman-Fried’s statement that the
repurchase was “entirely” funded from Alameda was false, as it was largely funded by funds
received as FTX customer deposits in furtherance of Bankman-Fried’s deception.
6.
The need to borrow funds received as customer deposits held at FTX Trading
was problematic for two reasons. First, Alameda’s inability to fund the transaction using its
own balance sheet was indicative of Alameda’s insolvency. Second, and worse still, the use of
funds from the trading platform to fund the repurchase left the platform in an even greater
imbalance, which Bankman-Fried attempted to cover up in a pervasive fraud that infected
virtually all aspects of FTX’s business. Indeed, in large part due to such fraud, FTX Trading
was also insolvent at the time of the Binance share repurchase, which closed on July 21, 2021.
In other words, the FTX Trading shares acquired through the share repurchase were actually
worthless based on a proper accounting of FTX Trading’s assets and liabilities.
7.
Having divested himself of his equity stake in his rival FTX, Zhao then set out
to destroy his now-unaffiliated competitor. As FTX grew, it became a clear threat to Binance’s
market dominance. Indeed, the period after the 2021 Share Repurchase (as defined herein) was
marked by distrust and acrimony between the rival cryptocurrency businesses and their
founders. In the end, Zhao’s succeed-at-all-costs business ethos was not limited to facilitating
money laundering. Beginning on November 6, 2022, Zhao sent a series of false, misleading,
and fraudulent tweets that were maliciously calculated to destroy his rival FTX, with reckless
disregard to the harm that FTX’s customers and creditors would suffer. As set forth herein in
4Page 5 more detail, Zhao’s false tweets triggered a predictable avalanche of withdrawals at FTX – the
proverbial run on the bank that Zhao knew would cause FTX to collapse. To make matters
worse, with FTX in freefall, Zhao sent additional false tweets calculated, in part, to prevent
FTX from seeking and obtaining alternative financing to cauterize the run on the institution by
customers deceived by the tweets. Collectively and individually, these false public statements
destroyed value that would have otherwise been recoverable by FTX’s stakeholders.
8.
Shortly after and based in part on Zhao’s series of false tweets and lingering
financial damage caused by the 2021 Share Repurchase, the Securities Commission of The
Bahamas petitioned for the winding up of FTX DM (defined below) on November 10, 2022.
On November 11 and November 14, 2022 (for purposes of this Complaint, collectively, the
“Petition Date”), the Debtors filed with the United States Bankruptcy Court for the District of
Delaware (the “Court”) voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. By this lawsuit, the Plaintiffs seek to recover, for the benefit of FTX’s creditors, at least
$1.76 billion that was fraudulently transferred to Binance and its executives at the FTX
creditors’ expense, as well as compensatory and punitive damages to be determined at trial.
JURISDICTION AND VENUE
9.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157 and
1334. Venue of this proceeding is proper under 28 U.S.C. § 1409. This action is a core
proceeding within the meaning of 28 U.S.C. § 157(b) and an adversary proceeding pursuant to Rule 7001 of the Federal Rules of Bankruptcy Procedure.
10.
Pursuant to Rule 7008-1 of the Local Rules of Bankruptcy Practice and
Procedure of the Court, Plaintiffs consent to the entry of final orders and judgments by the
Court on these claims to the extent that it is later determined that the Court, absent consent of
the parties, cannot enter final orders or judgments consistent with Article III of the United
States Constitution.
5Page 6 THE PARTIES
11.
Plaintiff FTX Trading, Ltd. (“FTX Trading”) is a corporation registered in
Antigua and Barbuda. FTX Trading did business as “FTX.com,” a global exchange that offered
customers the ability to trade cryptocurrencies and related assets. As of the Petition Date, FTX
Trading was 80% owned by Paper Bird Inc.
12.
Plaintiff FTX Digital Markets Ltd. (“FTX DM” and, together with the Debtors,
“FTX”) is a company incorporated in the Commonwealth of The Bahamas, acting through
Brian C. Simms KC, Kevin G. Cambridge and Peter Greaves in their capacity as joint and
several official liquidators of FTX DM (and in their capacity as joint and several provisional
liquidators, where applicable). On December 19, 2023, and as subsequently amended, FTX
DM and the Debtors entered into a Global Settlement Agreement (“GSA”) which, among other
things, resolved a dispute regarding the ownership of certain assets and the allocation of
recoveries therefrom. Pursuant to the GSA, FTX DM’s customers’ recoveries are tied to the
Debtors’ customers’ recoveries. Thus, an increase in the Debtors’ recoveries also increases
FTX DM’s customers’ recoveries.
13.
Plaintiff Alameda Research Ltd. (“Alameda Ltd.”) is a British Virgin Islands
company limited by shares. It is a wholly owned subsidiary of Alameda LLC.
14.
Plaintiff Alameda Research LLC (“Alameda LLC”) is a Delaware limited
liability company that was as of the Petition Date 90% owned by Bankman-Fried and 10%
owned by Gary Wang (“Wang”).
15.
Plaintiff West Realm Shires, Inc. (“WRS” and, together with its subsidiaries,
“FTX U.S.”) is a Delaware corporation that was as of the Petition Date 52.99% owned by
Bankman-Fried, 16.93% owned by Wang, 7.83% owned by Nishad Singh (“Singh”), and
22.25% owned by other minority shareholders, including WRS employees and outside
investors.
6Page 7 16.
Plaintiff West Realm Shires Services Inc. (“WRSS”) doing business as “FTX
US,” is a Delaware corporation and a wholly owned subsidiary of Plaintiff WRS.
17.
Plaintiff Cottonwood Grove Ltd. (“Cottonwood”) is a Hong Kong company
limited by its shares and a subsidiary of Plaintiff Alameda LLC.
18.
Plaintiff Euclid Way Ltd. (“Euclid Way”) is an Antigua company limited by its
shares and a subsidiary of Plaintiff Alameda LLC.
19.
Plaintiff Paper Bird Inc. (“PaperBird”) is a Delaware corporation that as of the
Petition Date was 100% owned by Bankman-Fried.
20.
Plaintiff Clifton Bay Investments LLC (“Clifton” and, together with FTX
Trading, Alameda Ltd., Alameda LLC, WRS, WRSS, Cottonwood, Euclid Way, and PaperBird
(the “Debtor Plaintiffs”), is a Delaware limited liability company that as of the Petition Date
was 100% owned by Bankman-Fried.
21.
Defendant Binance Holdings, Ltd., d/b/a Binance.com (“Binance Holdings”)
is Cayman Islands limited liability company founded by Defendant Zhao.
22.
Defendant Binance Capital Management Co. Ltd. (“Binance Capital
Management”) is a company established under the laws of the British Virgin Islands.
23.
Defendant Binance Holdings (IE) Limited (“Binance IE”) is a holding
company incorporated in Ireland.
24.
Defendant Binance (Services) Holdings Limited (“Binance Services” and,
together with Binance IE, Binance Holdings and Binance Capital Management, “Binance” or
the “Binance Defendants”) is a holding company incorporated in Ireland. Defendants Binance
Holdings, Binance IE, Binance Services, and Zhao consented to the entry of a December 14,
2023 Consent Order entered in the United States District Court for the Northern District of
Illinois (the “Consent Order”) in connection with an action brought by the Commodity
Futures Trading Commission. The Consent Order referenced above states in its Findings of
7Page 8 Fact that Binance Holdings and “at least certain” Binance affiliates, including Binance
Holdings, Binance IE and Binance Services “have commingled funds, relied on shared
technical infrastructure, and engaged in activities to collectively advertise and promote the
Binance brand.” Those findings of fact further state that “Binance’s reliance on a maze of
corporate entities to operate the Binance platform is deliberate; it is designed to obscure the
ownership, control, and location of the Binance platform.”
25.
Defendant Changpeng Zhao (“Zhao” also commonly known as “CZ”) is the
founder and former CEO of Binance. Zhao pled guilty to violating the Bank Secrecy Act, 31
USC 5311 et seq, by causing Binance to fail to implement an effective anti-money laundering
program. He ceased his role as CEO of Binance on November 21, 2023. Upon information
and belief, Zhao retains his ownership stake in Binance, which is an estimated 90% of the
company. The Consent Order states in its Findings of Fact that “Zhao has directly or indirectly
owned the scores of entities that collectively operate the Binance platform . . . .”
26.
Defendant Dinghua Xiao worked at Binance from approximately 2017 to
September 2019 at various Binance subsidiaries, including BitDJ in Tokyo, Japan, and Ruique
Culture Development Co, Ltd., in Shanghai, China.
27.
Defendant Samuel Wenjun Lim was the Binance Head of Compliance from
2018 through 2022.
28.
Does 1-1,000 are defendants, including but not limited to initial and subsequent
transferees of the 2021 Fraudulent Transfers (defined below), whose true names, identities and
capacities are presently unknown to the Plaintiffs. As and when the names, identities, and
capacities of these fictitiously named Defendants become known, the Plaintiffs will amend this
Complaint to set forth these Defendants’ true names, identities, and capacities and otherwise
proceed against them as if they had been named parties upon the commencement of this
adversary proceeding.
8Page 9 FACTUAL BACKGROUND
A.
The Creation of the Binance and FTX Exchanges
29.
In 2017, Defendant Zhao launched Binance.com to provide services to crypto
asset investors. Since at least July 2017, Binance has operated Binance.com as an international
crypto asset trading platform. The Binance.com platform markets itself as being available to
customers in more than 170 countries. It offers trading in over 350 crypto assets and makes
available various other investment opportunities involving crypto assets. Binance operates
through a number of affiliated entities, in multiple jurisdictions, all tied to Zhao as the
beneficial owner. Today, Binance.com is the largest cryptocurrency trading exchange in the
world with a 24-hour spot trading volume of over $40 billion USD, nearly four times larger
than its second closest competitor.
30.
In 2017, Zhao and Binance created a new cryptocurrency, “Binance coin” or
“BNB.” BNB is the native cryptocurrency of the Binance exchange. From inception, Binance
touted an investment in BNB as an investment in Binance itself, including its efforts to create
a successful crypto-only asset trading platform.
31.
In 2019, Binance also introduced its “stablecoin”—a cryptocurrency that is
specifically pegged to the value of a stable asset—and called it “BUSD.” Unlike BNB, a token
that can experience significant volatility in price, BUSD is pegged to and backed by the U.S.
dollar.
32.
In 2017, Bankman-Fried co-founded Alameda LLC, a crypto trading hedge fund
organized under the laws of Delaware (together with Alameda Ltd. and its subsidiaries,
“Alameda”). By May 2019, that venture led him to found his own crypto exchange, FTX.com,
to operate as an international platform to trade and invest in cryptocurrency.
33.
On May 8, 2019, FTX launched “FTT,” FTX’s native digital asset token. FTT
is an “exchange token” proprietary to FTX that offered its holders certain benefits that flowed
9Page 10 from trading or investment activity on FTX’s exchanges. FTT was designed in such a way that
it derived its total value from FTX’s enterprise value. BNB had a similar function, each of
which allowed the respective exchanges control over the coin available on the market, which
could inflate or deflate the prices.
B.
Binance Acquires Equity in FTX Entities
34.
In or about August 2019, discussions about Binance purchasing an equity stake
in FTX began. After months of negotiations, on or about November 27, 2019, Binance
purchased 250 Series A Preferred Shares in FTX Trading (equaling an approximately 20%
stake) at an issuance price of $73,200 USD per share (the “2019 Share Transfer”). To fund
the acquisition, Binance paid 1,002,739 BNB, which had a trading value of approximately
$18.3 million.
35.
As part of the 2019 Share Transfer, FTX Trading and Binance entered into an
Investor’s Rights Agreement dated November 27, 2019, whereby Binance received a right of
first refusal with respect to any new FTX Trading securities issued up to the equivalent amount
that Binance held at the time (the “Binance ROFR”). FTX co-founders Bankman-Fried and
Wang also entered into non-compete agreements on the same day in which they agreed that
they would not obtain an ownership stake in or provide services to any company competing
with Binance besides FTX.
36.
By the end of 2019, Bankman-Fried had determined to open a United States-
based exchange platform. On February 28, 2020, Zhao signed a waiver of the non-compete
allowing Bankman-Fried and Wang to hold equity interests in WRS, the parent company of
FTX’s new U.S. exchange platform. Bankman-Fried took a 52.9% equity interest in WRS.
37.
That same day, Zhao, along with other Binance executives, Defendants Dinghua
Xiao and Samuel Wenjun Lim (collectively, including Zhao, the “Binance Executives”), also
purchased 200,000 WRS Shares in the aggregate (equaling approximately 18.4% stake in
10Page 11 WRS) pursuant to a founders restricted stock purchase agreements dated February 28, 2020 for
an aggregate purchase price of two dollars.
C.
The 2021 Share Repurchase
38.
In July 2021, Bankman-Fried and FTX entered into discussions with Binance
regarding a potential repurchase of the FTX Trading and WRS shares held by Binance and the
Binance Executives (the “2021 Share Repurchase”). The Parties consummated the 2021
Share Repurchase on or about July 15, 2021, as memorialized in seven written agreements
executed on the same day:
39.
1)
July 15, 2021 Share Transfer Agreement for the transfer of the FTX
Trading Series A Preferred Shares to Euclid Way (“Series A Preferred
Share Transfer Agreement”);
2)
July 15, 2021 Share Transfer Agreement for the transfer of 42,838 WRS
Shares from Xiao to Bankman-Fried (“Xiao–Bankman-Fried Share
Transfer Agreement”);
3)
July 15, 2021 Share Transfer Agreement for the transfer of 93,478 WRS
Shares from Zhao to Bankman-Fried (“Zhao–Bankman-Fried Share
Transfer Agreement”);
4)
July 15, 2021 Share Transfer Agreement for the transfer of 33,122 WRS
Shares from Lim to Wang (“Lim–Wang Share Transfer Agreement”);
5)
July 15, 2021 Share Transfer Agreement for the transfer of 10,423 WRS
Shares from Xiao to Wang (“Xiao–Wang Share Transfer
Agreement”);
6)
July 15, 2021 Share Transfer Agreement for the transfer of 20,139 WRS
Shares from Lim to Singh (“Lim–Singh Share Transfer Agreement”,
together with the Lim–Wang Share Transfer Agreement, Zhao–Wang
Share Transfer Agreement, Zhao–Bankman-Fried Share Transfer
Agreement, and the Xiao–Bankman-Fried Share Transfer Agreement,
the “FTX Executives Share Transfer Agreements”); and
7)
July 15, 2021 Termination Certificate dissolving the Initial Series A
Preferred Share Transfer Agreement and the Binance ROFR.
The 2021 Share Repurchase recouped both the FTX Trading shares purchased
by Binance in 2019 (the “FTX Trading Repurchase”) and the WRS shares purchased by
Binance Executives in 2020 (the “WRS Repurchase”). In exchange, FTX and its executives
11Page 12 agreed to pay consideration consisting of BNB, FTT, and BUSD. While the true value of the
FTT, which was tied to the value of FTX, was likely zero at the time based on a proper
accounting of FTX Trading’s assets and liabilities, the BNB and BUSD transferred in
consideration for the 2021 Share Repurchase had a fair market value of approximately $1.76
billion.
40.
The WRS Repurchase prong of the 2021 Share Repurchase involved certain
FTX executives, as buyers, and the Binance Executives, as sellers, whereby the FTX executives
individually entered into the FTX Executives Share Transfer Agreements for the repurchase of
the 200,000 WRS Shares, at a price per share of $152.63, for a quantity of BUSD equal to
$30,526,000. At the time of the WRS Repurchase, WRS was balance-sheet insolvent based on
a proper accounting of the Debtors’ assets and liabilities, rendering the repurchased WRS
shares worthless.
41.
The FTX Trading Repurchase prong of the 2021 Share Repurchase involved a
newly created subsidiary of Alameda, Euclid Way, as the nominal buyer, and Defendant
Binance Capital Management Co. Ltd., as nominal seller, whereby Euclid Way agreed to
purchase 96,456,750 Series A Preferred Shares (all of Binance’s Series A Preferred Shares)3
for:
3
1)
A quantity of BUSD equal to $1,172,237,000 based on a conversion
formula specified in the Share Transfer Agreement;
2)
A quantity of BNB equal to $554,868,500 based on a conversion
formula specified in the Share Transfer Agreement; and
3)
A quantity of FTT equal to $554,868,500 based on a conversion formula
specified in the Share Transfer Agreement.
FTX Series A Preferred Shares went through a 385,827 to 1 stock split on April 30, 2020, which converted
Binance’s 250 (par value $1.00) Series A Preferred Shares into 96,546,750 (par value $0.0000026) Series A
Preferred Shares.
12Page 13 42.
At the time of the FTX Trading Repurchase, FTX Trading was balance-sheet
insolvent, so it had no equity value. The repurchased FTX Trading shares therefore had no
value based on a proper accounting of FTX Trading’s assets and liabilities.
43.
While not a party to any of the agreements, Alameda (specifically, Alameda
Ltd.) was the direct transferor of all of the consideration in connection with the 2021 Share
Repurchase. For the FTT portion of the consideration, Alameda transferred the FTT directly
to one or more Binance entities. For the BUSD portion of the consideration, Alameda first
needed to obtain the BUSD. It did so through a series of transactions, including transferring at
least $721 million U.S. dollars to a New York trust maintained by an entity called “Paxos.”
Upon information and belief, Paxos, while not affiliated with Binance, served as the issuer of
BUSD on Binance’s behalf. Upon Alameda’s transfer of the U.S. Dollars to Paxos, Paxos then
“minted” an equivalent amount of BUSD and transferred it to Alameda. Alameda then
transferred the BUSD to an Alameda-controlled account on the Binance.com exchange (which
account was held in the name of Evergreen North Ltd. (“Evergreen”)).
Immediately
thereafter, upon information and belief, Alameda directed the transfer of the BUSD from the
Evergreen Binance.com account directly to one or more Binance entities. For the BNB portion
of the consideration, Alameda already held a quantity of BNB in the Evergreen account at
Binance.com. On the date of the 2021 Share Repurchase, upon information and belief,
Alameda directed the transfer of the requisite BNB directly to one or more Binance entities.
44.
On the back end, Alameda entered into “loan agreements” with each of Euclid
Way and the FTX executives for their respective obligations under the 2021 Share Repurchase.
But, upon information and belief, none of these loan agreements were ever repaid, nor was
there any intention to repay them.
13Page 14 D.
The 2021 Share Repurchase Was Made By and for Insolvent Companies in
Furtherance of Bankman-Fried’s Underlying Fraud
45.
The transfers made by the Debtor Plaintiffs (funded directly by Alameda) to
Binance were made at a time when (i) Alameda as a whole, and each of its subsidiaries, were
insolvent; (ii) FTX Trading as a whole, and each of its subsidiaries, were insolvent;
(iii) Alameda and FTX Trading on a combined and consolidated basis were insolvent; and
(iv) all Debtors on a combined and consolidated basis were insolvent. The causes of the
Debtors’ insolvency, and the means by which the Debtors were able to conceal it and appear
to operate normally, are manifold and will be proven at trial in detail. Fundamentally, however,
major drivers of the Debtors’ insolvency include the following:
(i)
The FTT held by the Debtors was worth far less than the amount at which FTX
booked its FTT assets. Indeed, as Ellison testified, it would have been
“misleading” to put Alameda’s FTT holdings in Alameda’s balance sheet
around the time of the 2021 Share Repurchase because “we wouldn’t have been
able to sell all the FTT for that much and it was much larger than the rest of the
items on our balance sheet at the time.”
(ii)
Similarly, other cryptocurrencies closely tied to FTX and Bankman-Fried,
colloquially known as “Sam coins,” were overvalued on the Debtors’ balance
sheet.
(iii)
At the behest of Bankman-Fried, the Debtors concealed, and at times actively
misrepresented, material facts about their business, including Alameda’s
unlimited line of credit against FTX Trading, as well as the fact that funds
received from customers, in exchange for a demand obligation, were being used
to fund Alameda’s risky and illiquid investments. Indeed, FTX’s creditors, and
the market generally, were unaware that FTX Trading did not have the financial
resources to satisfy all customer deposits at the time of the 2021 Share
Repurchase. FTX would not have been able to continue to operate its business
had customers attempted to withdraw their deposits.
(iv)
In part due to its ongoing fraud, at the time of the 2021 Share Repurchase, the
Debtors had accrued large regulatory liabilities that were unaccounted for in the
Debtors’ financial statements, including liabilities to the Internal Revenue
Service and the Commodity Futures Trading Commission.
46.
Indeed, just prior to the 2021 Share Repurchase, Ellison prepared a balance
sheet that showed that Alameda’s net asset value was approximately negative $2.7 billion, with
liabilities of $9.4 billion.
Ellison informed Bankman-Fried that Alameda did not have
14Page 15 sufficient funds to complete the 2021 Share Repurchase Agreement. Accordingly, as set forth
above, Bankman-Fried directed Alameda to take approximately $1 billion USD from FTX
customer deposits on the FTX.com platform to fund the 2021 Share Repurchase using
Alameda’s “line of credit on FTX.” The line of credit became an unlimited borrowing
mechanism which allowed the confiscation of customer deposits.
47.
The 2021 Share Repurchase was a critical component of Bankman-Fried’s
pervasive fraud involving the unauthorized use of FTX customer deposits. Ellison testified
that the 2021 Share Repurchase “confirm[ed] that [Bankman-Fried] saw Alameda’s line of
credit on FTX as a general backstop source of funds for whenever we needed funds.” Indeed,
according to Ellison, the 2021 Share Repurchase represented a significant scaling up of the
scheme, describing it as the “the first time that I can recall an amount that large being taken
from FTX.”
48.
The 2021 Share Repurchase also furthered Bankman-Fried’s deceptive scheme
to hide the vulnerability of the exchange to a run on the institution by customers seeking to
reclaim their assets deposited on the exchange. Contemporaneous communications reflect that
Bankman-Fried’s goal was to use the 2021 Share Repurchase to project confidence and strength
to the market, concealing both the underlying insolvency and the fraudulent use of customer
deposits. Just three days after the 2021 Share Repurchase, Bankman-Fried spoke with a
reporter from Forbes to discuss the transaction, and he and the reporter engaged in a follow-up
email exchange in the following days. In that exchange, the reporter asked:
[I]s there a chance we could take a look at Alameda’s asset breakdown? The
purchase of Binance’s shares was worth roughly $2.3B so profits must be
huge and the last AUM we had for Alameda was around $2.5B. If I
understand correctly, the purchase was made in cash, FTT, BUSD, and
BNB. Are these tokens solely Alameda’s? Did you spend any of your own
FTT?
Bankman-Fried answered:
15Page 16 The purchase was entirely from Alameda. Yeah, it had a good last year :P
Bankman-Fried’s false statements that the 2021 Share Repurchase was funded “entirely from
Alameda” and a result of Alameda having “a good year last year” evidence Bankman-Fried’s
intent to use the 2021 Share Repurchase to convey confidence and strength to the market at a
time when the Debtors were insolvent and secretly reliant on FTX Trading’s cash and crypto
from customer deposits for liquidity.
49.
For substantially the same reasons that Alameda, FTX Trading, and the Debtors
individually and collectively were insolvent on a balance sheet basis, they were also
inadequately capitalized and unable to pay their debts as they came due. For example, the
customer funds deposited with FTX Trading that were secretly and unlawfully used to fund the
2021 Share Repurchase were callable by the customers at any time. At the time of the 2021
Share Repurchase, neither FTX Trading, nor Alameda, had the assets to satisfy customer
withdrawal requests if all customers, or even a significant portion of them, were to demand the
return of their assets at the same time because FTX had committed customer deposits, and its
own assets, to risky and illiquid investments. FTX’s inability to cover customer deposits in the
event of such a “run on the bank” scenario became clear to the world in November 2022 when
FTX collapsed, but FTX was similarly unprepared for such a scenario at the time of the 2021
Share Repurchase.
50.
While the Debtors were able to raise new equity capital, at even higher
valuations, shortly after the 2021 Share Repurchase, those transactions were tainted by the
same overarching fraud. Indeed, investors who acquired equity in the Debtors after the 2021
Share Repurchase have asserted that such investments were induced by fraud. For example,
one such investor later asserted that its $275 million equity investment was induced by material
misrepresentations by FTX about “key aspects of FTX’s operations, including, among other
things, by claiming that FTX was legally compliant, that Alameda did not have superior access
16Page 17 to the FTX exchanges, and that FTX did not rehypothecate or loan customer funds.” According
to the same investor, during the diligence process, FTX also “kept hidden . . . that FTX and
Alameda were more closely linked than FTX had claimed and that Alameda had a very large
exposure to FTT, the native token of the FTX exchanges.”
51.
Based on their assertions that they were fraudulently induced to invest in FTX
Trading, preferred shareholders also asserted the right to forfeiture proceeds recoverable by the
Department of Justice from FTX insiders, leading to competing claims by the Debtors and the
preferred shareholders to such proceeds. As part of a settlement of that dispute, the Debtors
agreed to waive the Debtors’ claims for up to $230 million of those forfeiture proceeds in favor
of the preferred shareholders.
E.
Zhao’s Campaign to Destroy FTX
52.
Following the 2021 Share Repurchase, a widely reported feud arose between
Zhao and Bankman-Fried. This feud was due in part to public statements by Bankman-Fried
implying that Binance was not cooperative with government regulators and that FTX did not
want to be associated with Binance. Binance was indeed facing public accusations around the
globe of purposefully skirting banking and securities regulations, allowing money laundering
on its platform, allowing Iranian firms to trade on its platforms despite international sanctions,
allowing money to be funneled to terrorist organizations through its platform, and other illegal
conduct.
53.
In or around summer 2022, calls for governments to regulate cryptocurrency
exchanges, including a proposed regulatory scheme known as “BitLicense” in the United
States, gathered steam. FTX and Bankman-Fried adopted a pro-regulation stance, with
Bankman-Fried claiming that FTX was going to be “the most regulated and law-abiding
cryptocurrency exchange in the world.” On the other hand, many crypto enthusiasts favored
decentralization. Such enthusiasts included Zhao, who ultimately, along with Binance, were
17Page 18 found to have violated numerous U.S. regulations by using an intentionally opaque common
enterprise to engage in a “calculated strategy of regulatory arbitrage to their commercial
benefit.” Some crypto influencers, who, upon information and belief, were partially funded by
Binance, published explosive tweets calculated to turn customers against FTX, in part because
of its public support for crypto regulation. Such influencers were bringing Bankman-Fried’s
pro-regulation efforts to the crypto community’s attention. Tweets, YouTube videos, Telegram
groups, TikTok videos, and Reddit posts dedicated to criticizing Bankman-Fried’s regulatory
efforts were widely disseminated, sometimes getting hundreds of thousands of views and
comments.
54.
Around this time, FTX management began to suspect Binance was engaged in
a “months-long coordinated [fear, uncertainty, and doubt] campaign against FTX.” On the
evening of November 6, 2022, Bankman-Fried drafted a document titled “Coordinated FUD”
(i.e. fear, uncertainty, and doubt) in which he detailed his theory. FTX management were not
the only ones who suspected this. The Examiner in the above-captioned chapter 11 cases noted
in the Report of Robert J. Cleary, Examiner, that “after the Voyager Digital auction closed [in
late October 2022], there was concern that Binance and CZ were putting out negative press
statements in order to derail the FTX Group’s purchase of Voyager Digital’s assets.” In a U.S.
Senate hearing, an investor close to Bankman-Fried testified that Zhao and Bankman-Fried
“were at war with each other, and one put the other out of business, intentionally.”
F.
Zhao Deliberately Causes a Bank Run on FTX
55.
On or about November 1, 2022, confidential Alameda financials were leaked to
CoinDesk, a news and media company that covers cryptocurrency and blockchain technology
and industries. Within FTX, it was strongly suspected that Binance and Zhao were involved
in the leak. On November 2, 2022, CoinDesk published its now-infamous article, Divisions in
Sam Bankman-Fried’s Crypto Empire Blur on His Trading Titan Alameda’s Balance Sheet
18Page 19 (Ian Allen), revealing, among other things, that Alameda’s assets were made up largely of FTT,
raising serious concerns about both Alameda’s and FTX Trading’s financial condition.
56.
On November 6, 2022, Zhao sent the following tweets (the “November 6 Tweet
Thread”):
19Page 20 57.
Zhao’s November 6 Tweet Thread was false and misleading in multiple
respects. First, it is known from the circumstances that Zhao’s apparent liquidation of FTT
and related public statements were part of a deliberate strategy to destroy FTX, and improve
Binance’s market position. Therefore, contrary to Zhao’s denial, Binance’s highly-publicized
apparent liquidation of its FTT was indeed a “move against a competitor” and was not, as Zhao
indicated, “due to recent revelations.” As Ellison testified, “if [Zhao] really wanted to sell his
FTT, he wouldn’t preannounce to the market that he was going to sell it. He would just sell it
[…] his real aim in that tweet, as I saw it, was not to sell his FTT, but to hurt FTX and
Alameda.”4 And, as Bankman-Fried observed, Binance “very publicly” sold its FTT to
“maximize the PR impact of it.” Similarly, in a Senate Hearing, an FTX investor stated: “All
of a sudden, in social media, CZ is asking for another $500 million. He wants to do a block
trade of FTT, or the proprietary token of FTX. He wants to convert it back to fiat. Why would
you put that out there? You know it is going to push down the value of that coin dramatically,
and that is exactly what happened.”
58.
Second, contrary to Zhao’s statement, Binance’s apparent liquidation of FTT
was not done in a way that would “minimize [] market impact.” Rather, as set forth above,
Zhao’s intent was to maximize market impact and to cause a decline in the price of FTT, thereby
harming FTX and increasing Binance’s market share. Indeed, by the time Zhao sent the first
tweet in the November 6 Tweet Thread, Binance had apparently already sold a massive amount
of FTT in a single trade. Zhao publicly confirmed such trade in a tweet Zhao sent later the
same day:
4
Caroline Ellison testified that Zhao’s tweet thread “brought concerns back and made them even stronger”
because it referred to “recent revelations” that came to light, “suggesting that Binance is aware of negative
news about FTX and Alameda.”
20Page 21 By this later tweet, Zhao confirmed that a November 5 tweet from an account called “Whale
Alert” regarding the transfer of 22,999,999 FTT was indeed “part of” Zhao’s announced
liquidation of its FTT. This amount was greater than the 18,516,602 FTT that Binance received
in the 2021 Share Repurchase. Whether or not Binance had actually sold this FTT is unclear,
but what is clear is that Zhao wanted the market to believe he had done so.
59.
As it was intended to do, Zhao’s November 6 Tweet Thread sparked a market
panic and a run on the bank at FTX. As the Examiner in the above-captioned chapter 11 cases
reported, Zhao’s announcement that “Binance would be liquidating its sizeable FTT holdings
. . . caused a rapid sell off of FTT.” Customer net withdrawals went from averaging $18 million
per hour over the period from October 31, 2022 and November 6, 2022 (prior to the November
6 Tweet Thread) to around $150 million per hour from November 6, 2022 and November 7,
2022 (after the November 6 Tweet Thread). Alameda contributed the vast majority of any
liquid assets to cover the withdrawals, but at the rate customers were withdrawing funds, FTX
management knew, in the words of FTX co-founder, Gary Wang, “FTX was not fine and assets
were not fine because FTX did not have enough assets for customer withdrawals.”
60.
Later in the day on November 6, 2022, Zhao published the following tweet (the
“November 6 Risk-Management Tweet” and, together with the November 6 Tweet Thread,
the “November 6 False Tweets”):
21Page 22 61.
The November 6 Risk-Management Tweet was false and misleading in that, as
discussed above, Binance’s apparent liquidation of its FTT and Zhao’s public announcements
regarding the same, were not “just post-exit risk management.” Instead, as discussed above,
they were part of a deliberate strategy to cause a run on FTX as a means to destroy Binance’s
competitor FTX and improve Binance’s market position.
62.
Upon information and belief, the run on the bank at FTX would not have
occurred had Zhao not misrepresented his true intentions in sending the November 6 False
Tweets. To the contrary, if the market had been aware that Zhao’s true intention was to harm
FTX, it is highly unlikely that the November 6 False Tweets would have sparked the panic that
it did. Customers would have understood that Zhao’s actions were motivated by a personal
and professional feud between FTX and Binance (and their respective founders) and not by
sincere concerns about “risk management” or “recent revelations.”
63.
Unquestionably, the panic that Binance and Zhao created through the November
6 False Tweets caused financial harm to FTX and its creditors. Even assuming that the Debtors
were insolvent at the time of the November 6 Tweet Thread, Binance and Zhao’s statements
destroyed value that would have otherwise been recoverable by FTX’s stakeholders. As
discussed above, the resulting panic caused a surge in withdrawal and repayment requests by
customers and creditors. Not only did the withdrawals and repayments themselves diminish
FTX’s assets, but value was also destroyed because, among other reasons, the market panic
forced FTX to liquidate assets at discounted prices to generate liquidity to address the crisis,
22Page 23 including to satisfy the withdrawal and repayment requests. The same panic forced FTX to
respond to emergency collateral calls by FTX’s lenders, which also ultimately diminished the
value recoverable by FTX’s stakeholders.
64.
Given the unprecedented rate of withdrawals following the November 6 False
Tweets, FTX was in desperate need of an emergency infusion of capital. Bankman-Fried noted
FTX would “take whatever we can get, at whatever terms make people comfortable.” FTX
formed an “emergency funding team” to reach out to potential investors. Around the same time,
Bankman-Fried estimated that FTX only had a short time before it would run out of liquidity
to match customer withdrawals.
65.
Around 1 a.m. on November 8, 2022, Bankman-Fried called Zhao. Upon
information and belief, during this phone call, Bankman-Fried informed Zhao that FTX would
soon find itself unable to satisfy customer withdrawal requests, in part because Alameda had
been borrowing large amounts from FTX.com customer deposits, necessitating the emergency
financing that Bankman-Fried was requesting from Zhao. Bankman-Fried reflected to the FTX
team that Zhao “seemed receptive” but needed to consider the proposal.
66.
Only having considered Bankman-Fried’s proposal for approximately one hour,
around 2:30 a.m Zhao confirmed the “[r]ough proposal from us would be: we do a full take
over, cover all user asset shortage, to minimize damage to the market and the user . . . . [W]e
can move quickly.” Immediately thereafter, Bankman-Fried redirected FTX management’s
efforts toward building out a transaction with Binance where “CZ gets all dollars, tokens, and
FTX.com” and FTX would halt processing customer withdrawals from the FTX.com platform.
67.
On November 8, 2022, Bankman-Fried and Zhao executed a letter of intent on
behalf of their respective companies (the “Letter of Intent”). The Letter of Intent provided
that, subject to due diligence to be completed within 30 days, Binance would acquire FTX
Trading and inject capital sufficient to address FTX’s liquidity issues. The Letter of Intent also
23Page 24 included an exclusivity period in which FTX agreed not to seek financing from any other
investors.
68.
A few hours later Zhao tweeted (the “November 8 Tweets”):
69.
Based on the Letter of Intent, and the November 8 Tweets announcing the same,
FTX leadership halted communications with investors. As one officer at FTX wrote to a
colleague at this time, “In light of [the exclusivity provision], don’t think it makes sense to
engage with” certain other potential investors. Instead, FTX employees, including FTX
executives, quickly got to work gathering the documents requested by Binance. Binance sent
over a revised due diligence request list around 12:00 p.m. on November 9, 2022. Around the
same time, FTX employees and Binance employees started having kick-off calls to determine
the scope of the due diligence. The general counsel of FTX.US. wrote on November 9, 2022,
24Page 25 “[s]poke to Binance legal this morning as a diligence kick-off call. Was very high level and
they said they would follow-up . . . .”
70.
At 3:00 p.m. on November 9, 2022, while FTX employees were still working
on Binance’s updated diligence requests and despite Zhao’s warning that there was “a lot to
cover and [the deal] will take some time,” Binance published a tweet thread announcing that it
was backing out “as a result of corporate due diligence” (the “November 9 Tweets”).
71.
According to Ellison, “within a day” after Binance’s November 9 Tweets,
everything at FTX fell apart.
72.
As stated above, at the time Zhao entered into the Letter of Intent, he had, upon
information and belief, already been made aware of the “mishandled” customer funds during
his conversation with Bankman-Fried. This is contrary to Binance’s representation in the
November 9 Tweets that he learned that fact after entering into the Letter of Intent. In addition,
25Page 26 Zhao was also aware that the Debtors were insolvent when he entered into the Letter of Intent.
Moreover, upon information and belief, during the approximately 24-hour period during which
Binance supposedly conducted “due diligence,” no new material information was provided to
Zhao and Binance in the diligence process that would have revealed new issues beyond
Binance’s “control or ability to help,” causing Binance to withdraw.
73.
Based on these circumstances, it is now apparent that Binance’s execution of
the Letter of Intent, as well Zhao’s November 8 Tweets (announcing that Binance “intend[ed]
to fully acquire FTX.com”) and Binance’s November 9 Tweets (withdrawing from the Letter
of Intent “as a result of corporate due diligence”) were false and misleading in that Zhao and
Binance never intended to consummate the contemplated acquisition.
Instead, upon
information and belief, the Letter of Intent, and Zhao’s public statements, advanced Zhao’s
goal of destroying FTX by (i) preventing FTX from seeking alternate financing, and
(ii) allowing Zhao to create the impression, through Binance’s November 9 Tweets, that
Binance had seen something in the due diligence regarding FTX’s finances that was even worse
than what the public already believed.
74.
FTX and its creditors were harmed by Binance’s and Zhao’s false and
misleading statements that they intended to acquire FTX, as well as their false and misleading
subsequent statements regarding the reason why they decided not to acquire FTX. This series
of false communications eliminated any possibility that FTX would obtain adequate emergency
financing from any other source. They also eliminated any possibility that FTX could resume
and stabilize its business.
75.
As discussed above, FTX.com and FTX.US. experienced a significant increase
in gross and net withdrawals following the November 6 False Tweets. On November 6 and
November 7, 2022, FTX.com and FTX.US. exchanges processed approximately $6 billion in
net customer withdrawals, with many of the customers withdrawing more than 90% of their
26Page 27 account value. This unprecedented increase in withdrawals led to withdrawals being halted on
the FTX.com exchange on November 8, 2022.
76.
Notably, the withdrawal rate increased slightly following the publication of the
CoinDesk article on November 2, 2022 and then stabilized in the days following. Within hours
of the November 6 False Tweets, however, the withdrawal rate skyrocketed to unmanageable
levels. Furthermore, the publication of the CoinDesk article coincided with a slight dip in the
price of FTT, but some of that value had been recuperated in the days following publication.
However, after the Binance and Zhao’s tweets, the price of FTT plummeted from $24.36 to
$2.30.
77.
On November 10, 2022, the Securities Commission of The Bahamas petitioned
the Supreme Court of The Bahamas for the winding up of FTX DM, the FTX.com entity
holding the license to operate the exchange in The Bahamas, as a result of, among other things,
the fallout from the Letter of Intent, the November 6 Tweet Thread, the November 8 Tweets,
and the November 9 Tweets. The request was provisionally granted placing FTX DM into
provisional liquidation. Almost simultaneously, on November 11, 2022, Bankman-Fried
appointed John J. Ray III (“Ray”) as CEO, withdrawing his managerial power for the rest of
the FTX enterprise. As his first act, Ray directed the filing of the above-captioned chapter 11
cases on an emergency basis on November 11, and November 14, 2022.
78.
Additional factual background relating to FTX’s businesses and the
commencement of the above-captioned chapter 11 cases is set forth in the Declaration of John
J. Ray III in Support of Chapter 11 Petitions and First Day Pleadings [D.I. 24], the Declaration
of Edgar W. Mosley II in Support of Chapter 11 Petitions and First Day Pleadings [D.I. 57],
the Supplemental Declaration of John J. Ray III in Support of First Day Pleadings [D.I. 92],
and the Supplemental Declaration of Edgar W. Mosley II in Support of First Day Pleadings
[D.I. 93].
27Page 28 79.
After November 6, 2022, Binance saw a significant growth and increased
activity in the cryptocurrency market. Specifically, Binance experienced a surge in new users,
increase in trading volume and liquidity, and a significant increase in Binance’s market share.
In fact, Binance’s official blog stated that “[t]he biggest winner in 2022, Binance, gained nearly
20% market share.”
CAUSES OF ACTION
FIRST CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Constructive) Against All Defendants
[11 U.S.C. §§ 548(a)(1)(B) and 550]
80.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
81.
Under 11 U.S.C. § 548(a)(1)(B), a debtor may avoid any transfer of an interest
of the debtor in property or any obligation incurred by the debtor that was made or incurred on
or within 2 years before the date of the filing of the petition if the debtor (i) received less than
reasonably equivalent value in exchange for such transfer or obligations; and (ii) was insolvent;
engaged or was about to engage in a business or transaction for which the remaining assets
were unreasonably small in relation to the business or transaction; or intended to incur, or
believed that the debtor would incur debts beyond its ability to pay such debts as they became
due.
82.
As set forth above, in connection with the 2021 Share Repurchase, one or more
of the Debtor Plaintiffs made the following transfers within two years of the Petition Date (the
“2021 Fraudulent Transfers”) to or for the benefit of the Defendants as follows:
28Page 29 Transferee
Binance (with Binance
Capital Management as
nominal counterparty)
Binance (with Binance
Capital Management as
nominal counterparty)
Binance (with Binance
Capital Management as
nominal counterparty)
Binance (with Zhao as
nominal counterparty)
Binance (with Xiao as
nominal counterparty)
Binance (with Xiao as
nominal counterparty)
Binance (with Lim as nominal
counterparty)
Binance (with Lim as nominal
counterparty)
83.
Amount Received
Transferor and Stated
Purpose Transfer
1,172,237,000 in BUSD
From Alameda, for FTX
Trading Repurchase
18,516,602 in FTT
From Alameda, for FTX
Trading Repurchase
1,764,041 in BNB
From Alameda, for FTX
Trading Repurchase
14,267,547.14 in BUSD
1,590,862.49 in BUSD
6,538,363.94 in BUSD
5,055,410.864 in BUSD
3,073,815.57 in BUSD
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
The 2021 Fraudulent Transfers were made as part of a single overall transaction,
the 2021 Share Repurchase, and should be treated as a single transfer for purposes of this action.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent Transfers
individually, constituted a transfer of an interest in the property of the Debtor Plaintiffs.
84.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made in exchange for less than fair consideration and less than
reasonably equivalent value.
85.
Each of (i) FTX Trading, (ii) Alameda, (iii) FTX Trading and Alameda on a
combined and consolidated basis, and (iv) all Debtors on a combined and consolidated basis,
were insolvent at the time of, or became insolvent as a result of, the 2021 Fraudulent Transfers.
86.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, were engaged in a business or
29Page 30 transaction for which the remaining assets were unreasonably small in relation to the business
or transaction.
87.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, intended to, believed, or reasonably
should have believed that they would incur debts beyond their ability to pay such debts as they
became due.
88.
By virtue of the foregoing, the 2021 Fraudulent Transfers collectively, and each
of the 2021 Fraudulent Transfers individually, were fraudulent transfers avoidable under
section 548 of the Bankruptcy Code and the Debtor Plaintiffs are entitled to avoid and recover
each of the 2021 Fraudulent Transfers under sections 548 and 550 of the Bankruptcy Code.
89.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
90.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of one or more of the
2021 Fraudulent Transfers.
91.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each Defendant pursuant to section 550(a) of the Bankruptcy Code.
30Page 31 SECOND CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Constructive) Against All Defendants
[11 U.S.C. §§ 544, and 550, and applicable state law including Uniform Fraudulent Transfer
Act as enacted in Delaware or other applicable state law]
92.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein. Under section 544(b) of the Bankruptcy Code, any debtor may avoid
any transfer of an interest of the debtor in property or any obligation incurred by the debtor that
is avoidable under applicable law by a creditor holding an unsecured claim that is allowable
under section 502 of the Bankruptcy Code or that is not allowable only under section 502(e) of
the Bankruptcy Code. The phrase “under applicable law” has been interpreted to include the
state fraudulent transfer laws that would govern potentially fraudulent transactions. The Debtor
Plaintiffs include Alameda LLC, a limited liability company organized under the laws of the
State of Delaware, as well as multiple other entities organized under the laws of the State of
Delaware.
93.
Under the Uniform Fraudulent Transfer Act as enacted in Delaware, a transfer
is fraudulent as to present creditors where the debtor made the transfer without receiving a
reasonably equivalent value in exchange for the transfer and the debtor was insolvent at that
time or the debtor became insolvent as a result of the transfer. Del. Code tit. 6, § 1305. A
transfer is fraudulent as to present and future creditors where the debtor did not receive
reasonably equivalent value for the transfer and the debtor (a) was engaged or was about to
engage in a business or a transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction; or (b) intended to incur, or
believed that the debtor would incur debts beyond the debtor’s ability to pay as they became
due. Del. Code tit. 6, § 1304.
94.
In connection with the 2021 Share Repurchase, one or more of the Debtor
Plaintiffs made the 2021 Fraudulent Transfers to or for the benefit of the Defendants.
31Page 32 95.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, constituted a transfer of an interest in the property of the Debtor
Plaintiffs.
96.
At the times of, and subsequent to, each of the 2021 Fraudulent Transfers,
Debtor Plaintiffs had at least one creditor with an allowable unsecured claim for liabilities,
which remained unsatisfied as of the Petition Date.
97.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made in exchange for less than fair consideration and less than
reasonably equivalent value.
98.
Each of (i) FTX Trading, (ii) Alameda, (iii) FTX Trading and Alameda on a
combined and consolidated basis, and (iv) all Debtors on a combined and consolidated basis,
were insolvent at the time of, or became insolvent as a result of, the 2021 Fraudulent Transfers.
99.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, were engaged in a business or
transaction for which the remaining assets were unreasonably small in relation to the business
or transaction.
100.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, intended to, believed, or reasonably
should have believed that they would incur debts beyond its ability to pay such debts as they
became due.
101.
By virtue of the foregoing, the 2021 Fraudulent Transfers collectively, and each
of the 2021 Fraudulent Transfers individually, were fraudulent transfers avoidable under
Delaware law or other applicable state law by a creditor holding an unsecured claim that is
32Page 33 allowable under section 502 of the Bankruptcy Code, and the Debtor Plaintiffs are entitled to
avoid and recover each of the 2021 Fraudulent Transfers under sections 544 and 550 of the
Bankruptcy Code.
102.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
103.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of one or more of the
2021 Fraudulent Transfers.
104.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each defendant pursuant to section 550(a) of the Bankruptcy Code.
THIRD CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Intentional) Against All Defendants
[11 U.S.C. §§ 548(a)(1)(A) and 550]
105.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
106.
Under 11 U.S.C. § 548(a)(1)(A), a debtor may avoid any transfer of an interest
of the debtor in property or any obligation incurred by the debtor that was made or incurred on
or within 2 years before the date of the filing of the petition date if the debtor made such transfer
or incurred such obligation with actual intent to hinder, delay, or defraud a creditor.
33Page 34 107.
In connection with the 2021 Share Repurchase, one or more of the Debtor
Plaintiffs made the 2021 Fraudulent Transfers to or for the benefit of the Defendants.
108.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, constituted a transfer of an interest in the property of the Debtor
Plaintiffs.
109.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made with the actual intent to hinder, delay, or defraud present
and future creditors. As set forth above, a large portion of the of the 2021 Share Repurchase
was secretly funded using assets deposited on the FTX Trading exchange by FTX customers,
who were all creditors of FTX. As set forth above, the 2021 Share Repurchase was also in
furtherance of Bankman-Fried’s fraud insofar as it was used to convey confidence and strength
to the market at a time when the Debtors were insolvent and secretly reliant on customer
deposits for liquidity.
110.
By virtue of the foregoing, the 2021 Fraudulent Transfers collectively, and each
of the 2021 Fraudulent Transfers individually, were fraudulent transfers avoidable under
section 548(a)(1)(A) of the Bankruptcy Code, and the Debtor Plaintiffs are entitled to avoid
and recover each of the 2021 Fraudulent Transfers under sections 548(a)(1)(A) and 550 of the
Bankruptcy Code.
111.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
34Page 35 112.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of the initial transferee.
113.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each defendant pursuant to section 550(a) of the Bankruptcy Code.
FOURTH CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Intentional) Against All Defendants
[11 U.S.C. §§ 544, and 550, and applicable state law including the Uniform Fraudulent
Transfer Act as enacted in Delaware or other applicable state law]
114.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
115.
Under 11 U.S.C. § 544(b), a debtor may avoid any transfer of an interest of the
debtor in property or any obligation incurred by the debtor that is avoidable under applicable
law by a creditor holding an unsecured claim that is allowable under 11 U.S.C. § 502 or that is
not allowable only under 11 U.S.C. § 502(e). The phrase “under applicable law” has been
interpreted to include state fraudulent transfer laws that would govern potentially fraudulent
transactions.
The Debtor Plaintiffs include Alameda LLC, a limited liability company
organized under the laws of the State of Delaware, as well as multiple other entities organized
under the laws of the State of Delaware.
116.
Under the Uniform Fraudulent Transfer Act as enacted in Delaware, a transfer
is fraudulent as to present and future creditors if the transfer was made with actual intent to
hinder, delay or defraud any creditor of the debtor. Del. Code tit. 6, § 1304.
117.
In connection with the 2021 Share Repurchase, one or more of the Debtor
Plaintiffs made the 2021 Fraudulent Transfers to or for the benefit of the Defendants.
35Page 36 118.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, constituted a transfer of an interest in the property of the Debtor
Plaintiffs.
119.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made with the actual intent to hinder, delay, or defraud present or
future creditors. As set forth above, a large portion of the of the 2021 Share Repurchase was
secretly funded using assets deposited on the FTX Trading exchange by FTX customers, who
were all creditors of FTX. As further set forth above, the 2021 Share Repurchase was also in
furtherance of Bankman-Fried’s fraud insofar as it was used to convey confidence and strength
to the market at a time when the Debtors were insolvent and secretly reliant on customer funds
for liquidity.
120.
At the times of, and subsequent to, each of the 2021 Fraudulent Transfers, the
Debtor Plaintiffs had at least one creditor with an allowable unsecured claim for liabilities,
which remained unsatisfied as of the Petition Date.
121.
By virtue of the foregoing, each of the 2021 Fraudulent Transfers was a
fraudulent transfer avoidable under 11 U.S.C. §544 and applicable state law including the
Uniform Fraudulent Transfer Act as enacted in Delaware, by a creditor holding an unsecured
claim that is allowable under 11 U.S.C. § 502, and the Debtor Plaintiffs are entitled to avoid
and recover each of the 2021 Fraudulent Transfers under 11 U.S.C. §§ 544 and 550.
122.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
36Page 37 123.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made or an immediate or mediate transferee of the initial transferee.
124.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each defendant pursuant to section 550(a) of the Bankruptcy Code.
FIFTH CLAIM FOR RELIEF
Recovery of Fraudulent Transfers Against All Defendants
[11 U.S.C. § 550]
125.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
126.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
127.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of the initial transferee.
128.
Pursuant to 11 U.S.C. § 550(a), the Debtor Plaintiffs are entitled to recover the
property they transferred in connection with the 2021 Fraudulent Transfers or the value of such
property.
SIXTH CLAIM FOR RELIEF
Injurious Falsehood Against Binance and Changpeng Zhao
129.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
37Page 38 130.
Under applicable law, a person who publishes a false statement harmful to the
interests of another is subject to liability for pecuniary loss resulting to the other if (1) the
person intends for publication of the statement to result in harm to interests of the other having
a pecuniary value, or either recognizes or should recognize that it is likely to do so, and (2) the
person knows that the statement is false or acts in reckless disregard of its truth or falsity.
131.
As set forth above, the following statements by Binance Defendants and Zhao,
individually and collectively, were false and misleading: (1) the November 6 False Tweets,
(2) Binance’s execution of the Letter of Intent, (3) the November 8 Tweets, and (4) the
November 9 Tweets (collectively the “Binance False Statements”). Upon information and
belief, the Binance Defendants and Zhao maliciously intended for publication of the Binance
False Statements to harm the pecuniary interests of FTX. In particular, the Binance Defendants
and Zhao, through the Binance False Statements, intended to trigger a run on the bank by
publicizing Binance’s apparent liquidation of FTT. They then purported to come to the rescue,
publicly positioning Binance as the first third-party to gain access to FTX’s books and records
and other confidential information, thereby preventing FTX from seeking alternative financing
in the process and, subsequently, creating the impression that Binance had seen something in
the due diligence regarding FTX’s financials that was even worse than what the public already
believed. Upon information and belief, the Binance Defendants and Zhao knew that these
statements were false. In addition, the Binance False Statements were the partial basis for the
Securities Commission of The Bahamas seeking a winding up order for Plaintiff FTX DM.
132.
As a direct and proximate result of the Binance False Statements, Plaintiffs have
suffered damages in an amount to be determined at trial. The Binance Defendants and Zhao
are jointly and severally liable to the Plaintiffs for such damages, plus pre- and post-judgment
interest, punitive damages, and all other relief to which Plaintiffs are entitled as a result of the
misconduct alleged herein.
38Page 39 SEVENTH CLAIM FOR RELIEF
Fraud Against Binance and Changpeng Zhao
133.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
134.
Under applicable law, a claim for fraud requires proof of (1) a false
representation, (2) a defendant's knowledge or belief of its falsity or his reckless indifference
to its truth, (3) a defendant's intention to induce action, (4) reasonable reliance, and (5) causally
related damages.
135.
As set forth above, the Binance False Statements, collectively and individually,
were false, and the Binance Defendants and Zhao made the Binance False Statements with
knowledge of their falsity. The Binance Defendants and Zhao made the Binance False
Statements with the intent to induce FTX’s customers to withdraw their deposits in order to
harm FTX, and FTX’s customers reasonably relied in the November 6 False Tweets when they
submitted an unprecedented surge in withdrawal requests in the following days. In addition,
with respect to Binance’s execution of the Letter of Intent and the November 8 Tweets
specifically, those statements were also intended to cause FTX to cease seeking alternative
financing, and FTX indeed ceased its search for alternative financing in reasonable reliance
upon those statements.
136.
As a direct and proximate result of the Binance False Statements collectively
and individually, and the reasonable reliance thereon, Plaintiffs have suffered damages in an
amount to be determined at trial. The Binance Defendants and Zhao are jointly and severally
liable to Plaintiffs for such damages, plus pre- and post-judgment interest, punitive damages,
and all other relief to which Plaintiffs are entitled as a result of the misconduct alleged herein.
39Page 40 EIGHTH CLAIM FOR RELIEF
Intentional Misrepresentation Against Binance and Changpeng Zhao
137.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
138.
Under applicable law, an intentional misrepresentation claim requires proof of
(1) deliberate concealment by the defendant of a material past or present fact, or silence in the
face of a duty to speak; (2) scienter on the part of the defendant; (3) the defendant’s intent to
induce plaintiff's reliance upon the concealment; (4) causation; and (5) damages resulting from
the concealment.
139.
As set forth above, the Binance False Statements, collectively and individually,
concealed material facts, and the Binance Defendants and Zhao made the Binance False
Statements with the intent to conceal such facts. Specifically, in making the Binance False
Statements, the Binance Defendants and Zhao concealed the facts that (i) they were made in a
deliberate attempt to destroy their competitor, FTX and (ii) Binance never intended to acquire
FTX. The Binance Defendants and Zhao knew the Binance False Statements were false, and
nonetheless made the statements with the intent to induce FTX’s customers to withdraw their
deposits in order to harm FTX. FTX’s customers reasonably relied on the November 6 False
Tweets when they submitted an unprecedented surge in withdrawal requests in the following
days. In addition, with respect to Binance’s execution of the Letter of Intent and the November
8 Tweets specifically, those statements were also intended to cause FTX to cease seeking
alternative financing, and FTX indeed ceased its search for alternative financing in reasonable
reliance upon those statements.
140.
As a direct and proximate result of the Binance False Statements collectively
and individually, Plaintiffs have suffered damages in an amount to be determined at trial. The
Binance Defendants and Zhao are jointly and severally liable to the Plaintiffs for such damages,
40Page 41 plus pre-and post-judgment interest, punitive damages, and all other relief to which Plaintiffs
are entitled as a result of the misconduct alleged herein.
NINTH CLAIM FOR RELIEF
Unjust Enrichment Against Binance and
Changpeng Zhao
141.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
142.
Under applicable law, a cause of action for unjust enrichment exists where one
party unjustly retains a benefit to the loss of another without justification, and where there is
no other legal remedy at law.
143.
As set forth above, the Binance Defendants and Zhao made the Binance False
Statements with the intent to harm FTX and improve Binance’s market position. FTX suffered
the intended harm, and Binance’s customer base and revenues increased as a result.
144.
As a result of the Binance False Statements collectively and individually,
Plaintiffs have suffered damages in an amount to be determined at trial. The Binance
Defendants and Zhao are jointly and severally liable to the Plaintiffs for such damages, plus
pre- and post-judgment interest, punitive damages, and all other relief to which Plaintiffs are
entitled as a result of the misconduct alleged herein.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that this Court enter judgment in their
favor, as requested above, and as further set forth below:
A.
For an order avoiding and setting aside the transfers identified in Claims
I–V;
B.
For an order directing each respective initial, immediate, and/or mediate
transferee of the transfers identified in Claims I-V to return to FTX the
property transferred or pay the value of such property, as determined by
the Court;
C.
For an order compelling Defendants to pay to Plaintiffs, in restitution,
an amount not less than that which will make Plaintiffs whole;
41Page 42 D.
For an award of compensatory damages in an amount to be determined
at trial;
E.
For an award of punitive damages in an amount to be determined at trial;
F.
For prejudgment interest;
G.
For costs of suit; and
H.
For such additional and further relief that Plaintiffs may be entitled to
under law or equity.
42Page 43 Dated: November 10, 2024
Wilmington, Delaware
/s/ Brendan J. Schlauch
RICHARDS, LAYTON & FINGER, P.A.
Kevin Gross (No. 209)
Paul N. Heath (No. 3704)
Brendan J. Schlauch (No. 6115)
Robert C. Maddox (No. 5356)
One Rodney Square
920 N. King Street
Wilmington, DE 19801
Telephone: (302) 651-7700
Facsimile:
(302) 651-7701
gross@rlf.com
heath@rlf.com
schlauch@rlf.com
maddox@rlf.com
-and/s/ J. Christopher Shore
WHITE & CASE LLP
J. Christopher Shore (admitted pro hac vice)
Brian D. Pfeiffer (admitted pro hac vice)
Colin West (pro hac vice pending)
Ashley R. Chase (admitted pro hac vice)
Brett L. Bakemeyer (admitted pro hac vice)
1221 Avenue of the Americas
New York, New York 10020
Telephone: (212) 819-8200
cshore@whitecase.com
brian.pfeiffer@whitecase.com
cwest@whitecase.com
ashley.chase@whitecase.com
brett.bakemeyer@whitecase.com
Attorneys for the Plaintiffs
PDF Page 1
PlainSite Cover Page
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re
Chapter 11
FTX TRADING LTD., et al.,1
Case No. 22-11068 (JTD)
Debtors.
(Jointly Administered)
FTX TRADING LTD., ALAMEDA
RESEARCH LLC, ALAMEDA RESEARCH
LTD., WEST REALM SHIRES INC., WEST
REALM SHIRES SERVICES INC.,
CLIFTON BAY INVESTMENTS LLC,
COTTONWOOD GROVE LTD, EUCLID
WAY LTD, PAPER BIRD INC., FTX
DIGITAL MARKETS, LTD.2
Adv. Pro. No. 24-_____ (___)
Plaintiffs,
- against BINANCE HOLDINGS LIMITED.,
BINANCE CAPITAL MANAGEMENT CO.
LTD, BINANCE HOLDINGS (IE)
LIMITED, BINANCE (SERVICES)
HOLDINGS LIMITED, CHANGPENG
ZHAO, DINGHUA XIAO, SAMUEL
WENJUN LIM, and DOES 1-1000
Defendants.
COMPLAINT
Plaintiffs in the above-captioned adversary proceeding bring this complaint (the
“Complaint”) through the undersigned counsel and allege as follows:
1
2
The last four digits of FTX Trading Ltd.’s and Alameda Research LLC’s tax identification number are 3288
and 4063 respectively. Due to the large number of debtor entities in the above-captioned chapter 11 cases, a
complete list of the Debtors’ last four digits of their federal tax identification numbers is not provided herein,
but may be obtained on the website of the Debtors’ claims and noticing agent at
https://cases.ra.kroll.com/FTX.
FTX Digital Markets Ltd. (in Official Liquidation) was incorporated in the Commonwealth of The Bahamas
as an International Business Company, registered number 207269B.
RLF1 31855749v.1
PDF Page 3
NATURE OF THE ACTION
1.
In one sense, the story of FTX is well known. Once a rising star in the crypto
universe, FTX collapsed under the weight of the many material errors committed by its
founder, Sam Bankman-Fried (“Bankman-Fried”), and other FTX insiders, ultimately filing
for bankruptcy protection in November 2022. Less well known, however, is that BankmanFried’s pervasive malfeasance began long before it was discovered. Indeed, unbeknown to its
customers and creditors, based on a proper accounting of its assets and liabilities, the debtors
in these chapter 11 cases (the “Debtors”) may have been insolvent from inception and certainly
were balance-sheet insolvent by early 2021. Because of its insolvency, the Debtor Plaintiff’s
July 2021 transfer of at least $1.76 billion worth of cryptocurrency to its equity holder Binance
and certain Binance executives, in the form of a share repurchase, was a constructive fraudulent
transfer based on a straightforward application of Section 548(a)(1)(B) of the Bankruptcy
Code. Moreover, because the transfer was made in furtherance of Bankman-Fried’s scheme
described herein, it was also an intentional fraudulent transfer under Section 548(a)(1)(A) of
the Bankruptcy Code.
2.
Binance (as defined herein), founded in 2017 by Changpeng Zhao is today the
largest cryptocurrency exchange in the world by trading volume, with more than $100 trillion
in all-time trade value. While indisputably successful, Binance and Zhao achieved their
success in large part due to their patent disregard for, and affirmative violations of, the laws of
the United States. In 2023, Binance pleaded guilty to failing to implement anti-money
laundering and sanctions compliance policies, which, according to the United States Treasury
Secretary, “allowed money to flow to terrorists, cybercriminals, and child abusers through its
platform.” Zhao himself pleaded guilty to failure to implement anti-money laundering policies
and was sentenced to four months in prison.
2
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3.
Binance first acquired an equity stake in FTX in November 2019, when
Bankman-Fried sold 20% of his newly-minted international crypto exchange—FTX.com—
owned by FTX Trading (as defined herein), to what was then one of his largest competitors.
Binance purchased its stake in FTX Trading with 1,002,739 of Binance’s exchange token,
BNB. A little over a year later, Bankman-Fried expanded his cryptocurrency business into the
United States, under the umbrella of a parent company called WRS (as defined herein). In or
about February 2020, Binance Executives acquired a 18.4% stake in WRS for just two dollars.
4.
As discussed in more detail herein, Binance exited its investment in FTX in
2021. As Zhao would later remark, he decided to exit his position in FTX because of personal
grievances he had against Bankman-Fried. In July 2021, the parties negotiated a deal whereby
FTX bought back Binance’s and its executives’ entire stakes in both FTX Trading and WRS.
Pursuant to that deal, FTX’s Alameda Research division directly funded the share repurchase
with a combination of FTT (FTX’s exchange token), BNB (Binance’s exchange token), and
BUSD (Binance’s dollar-pegged stablecoin). In the aggregate, those tokens had a fair market
value of at least $1.76 billion.
5.
But Alameda was insolvent at the time of the share repurchase and could not
afford to fund the transaction. Indeed, as Bankman-Fried’s second-in-command, Caroline
Ellison, would later testify, she contemporaneously told Bankman-Fried “we don’t really have
the money for this, we’ll have to borrow from FTX to do it.” According to Ellison’s testimony,
Alameda spent about $1 billion of FTX Trading’s capital received from depositors to fund the
repurchase.
Ellison further testified that Bankman-Fried dismissed her concerns about
financial resources, telling her that, notwithstanding the need to use customer deposits, the
repurchase was “really important, we have to get it done.” Indeed, as discussed below, one of
the reasons Bankman-Fried viewed the transaction as “really important” was precisely because
of his desire to conceal his companies’ insolvency and send a false signal of strength to the
3
PDF Page 5
market. In connection with the share repurchase, Bankman-Fried was asked directly by a
reporter whether Alameda funded the entire repurchase using its own assets, expressing
surprise that Alameda could have done so given the purchase price and what was publicly
known regarding Alameda’s financial resources. In response, Bankman-Fried falsely stated:
“The purchase was entirely from Alameda. Yeah, it had a good last year :P” (i.e., an emoji for
a tongue sticking out). Of course, as is now known, Bankman-Fried’s statement that the
repurchase was “entirely” funded from Alameda was false, as it was largely funded by funds
received as FTX customer deposits in furtherance of Bankman-Fried’s deception.
6.
The need to borrow funds received as customer deposits held at FTX Trading
was problematic for two reasons. First, Alameda’s inability to fund the transaction using its
own balance sheet was indicative of Alameda’s insolvency. Second, and worse still, the use of
funds from the trading platform to fund the repurchase left the platform in an even greater
imbalance, which Bankman-Fried attempted to cover up in a pervasive fraud that infected
virtually all aspects of FTX’s business. Indeed, in large part due to such fraud, FTX Trading
was also insolvent at the time of the Binance share repurchase, which closed on July 21, 2021.
In other words, the FTX Trading shares acquired through the share repurchase were actually
worthless based on a proper accounting of FTX Trading’s assets and liabilities.
7.
Having divested himself of his equity stake in his rival FTX, Zhao then set out
to destroy his now-unaffiliated competitor. As FTX grew, it became a clear threat to Binance’s
market dominance. Indeed, the period after the 2021 Share Repurchase (as defined herein) was
marked by distrust and acrimony between the rival cryptocurrency businesses and their
founders. In the end, Zhao’s succeed-at-all-costs business ethos was not limited to facilitating
money laundering. Beginning on November 6, 2022, Zhao sent a series of false, misleading,
and fraudulent tweets that were maliciously calculated to destroy his rival FTX, with reckless
disregard to the harm that FTX’s customers and creditors would suffer. As set forth herein in
4
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more detail, Zhao’s false tweets triggered a predictable avalanche of withdrawals at FTX – the
proverbial run on the bank that Zhao knew would cause FTX to collapse. To make matters
worse, with FTX in freefall, Zhao sent additional false tweets calculated, in part, to prevent
FTX from seeking and obtaining alternative financing to cauterize the run on the institution by
customers deceived by the tweets. Collectively and individually, these false public statements
destroyed value that would have otherwise been recoverable by FTX’s stakeholders.
8.
Shortly after and based in part on Zhao’s series of false tweets and lingering
financial damage caused by the 2021 Share Repurchase, the Securities Commission of The
Bahamas petitioned for the winding up of FTX DM (defined below) on November 10, 2022.
On November 11 and November 14, 2022 (for purposes of this Complaint, collectively, the
“Petition Date”), the Debtors filed with the United States Bankruptcy Court for the District of
Delaware (the “Court”) voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. By this lawsuit, the Plaintiffs seek to recover, for the benefit of FTX’s creditors, at least
$1.76 billion that was fraudulently transferred to Binance and its executives at the FTX
creditors’ expense, as well as compensatory and punitive damages to be determined at trial.
JURISDICTION AND VENUE
9.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157 and
1334. Venue of this proceeding is proper under 28 U.S.C. § 1409. This action is a core
proceeding within the meaning of 28 U.S.C. § 157(b) and an adversary proceeding pursuant to
Rule 7001 of the Federal Rules of Bankruptcy Procedure.
10.
Pursuant to Rule 7008-1 of the Local Rules of Bankruptcy Practice and
Procedure of the Court, Plaintiffs consent to the entry of final orders and judgments by the
Court on these claims to the extent that it is later determined that the Court, absent consent of
the parties, cannot enter final orders or judgments consistent with Article III of the United
States Constitution.
5
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THE PARTIES
11.
Plaintiff FTX Trading, Ltd. (“FTX Trading”) is a corporation registered in
Antigua and Barbuda. FTX Trading did business as “FTX.com,” a global exchange that offered
customers the ability to trade cryptocurrencies and related assets. As of the Petition Date, FTX
Trading was 80% owned by Paper Bird Inc.
12.
Plaintiff FTX Digital Markets Ltd. (“FTX DM” and, together with the Debtors,
“FTX”) is a company incorporated in the Commonwealth of The Bahamas, acting through
Brian C. Simms KC, Kevin G. Cambridge and Peter Greaves in their capacity as joint and
several official liquidators of FTX DM (and in their capacity as joint and several provisional
liquidators, where applicable). On December 19, 2023, and as subsequently amended, FTX
DM and the Debtors entered into a Global Settlement Agreement (“GSA”) which, among other
things, resolved a dispute regarding the ownership of certain assets and the allocation of
recoveries therefrom. Pursuant to the GSA, FTX DM’s customers’ recoveries are tied to the
Debtors’ customers’ recoveries. Thus, an increase in the Debtors’ recoveries also increases
FTX DM’s customers’ recoveries.
13.
Plaintiff Alameda Research Ltd. (“Alameda Ltd.”) is a British Virgin Islands
company limited by shares. It is a wholly owned subsidiary of Alameda LLC.
14.
Plaintiff Alameda Research LLC (“Alameda LLC”) is a Delaware limited
liability company that was as of the Petition Date 90% owned by Bankman-Fried and 10%
owned by Gary Wang (“Wang”).
15.
Plaintiff West Realm Shires, Inc. (“WRS” and, together with its subsidiaries,
“FTX U.S.”) is a Delaware corporation that was as of the Petition Date 52.99% owned by
Bankman-Fried, 16.93% owned by Wang, 7.83% owned by Nishad Singh (“Singh”), and
22.25% owned by other minority shareholders, including WRS employees and outside
investors.
6
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16.
Plaintiff West Realm Shires Services Inc. (“WRSS”) doing business as “FTX
US,” is a Delaware corporation and a wholly owned subsidiary of Plaintiff WRS.
17.
Plaintiff Cottonwood Grove Ltd. (“Cottonwood”) is a Hong Kong company
limited by its shares and a subsidiary of Plaintiff Alameda LLC.
18.
Plaintiff Euclid Way Ltd. (“Euclid Way”) is an Antigua company limited by its
shares and a subsidiary of Plaintiff Alameda LLC.
19.
Plaintiff Paper Bird Inc. (“PaperBird”) is a Delaware corporation that as of the
Petition Date was 100% owned by Bankman-Fried.
20.
Plaintiff Clifton Bay Investments LLC (“Clifton” and, together with FTX
Trading, Alameda Ltd., Alameda LLC, WRS, WRSS, Cottonwood, Euclid Way, and PaperBird
(the “Debtor Plaintiffs”), is a Delaware limited liability company that as of the Petition Date
was 100% owned by Bankman-Fried.
21.
Defendant Binance Holdings, Ltd., d/b/a Binance.com (“Binance Holdings”)
is Cayman Islands limited liability company founded by Defendant Zhao.
22.
Defendant Binance Capital Management Co. Ltd. (“Binance Capital
Management”) is a company established under the laws of the British Virgin Islands.
23.
Defendant Binance Holdings (IE) Limited (“Binance IE”) is a holding
company incorporated in Ireland.
24.
Defendant Binance (Services) Holdings Limited (“Binance Services” and,
together with Binance IE, Binance Holdings and Binance Capital Management, “Binance” or
the “Binance Defendants”) is a holding company incorporated in Ireland. Defendants Binance
Holdings, Binance IE, Binance Services, and Zhao consented to the entry of a December 14,
2023 Consent Order entered in the United States District Court for the Northern District of
Illinois (the “Consent Order”) in connection with an action brought by the Commodity
Futures Trading Commission. The Consent Order referenced above states in its Findings of
7
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Fact that Binance Holdings and “at least certain” Binance affiliates, including Binance
Holdings, Binance IE and Binance Services “have commingled funds, relied on shared
technical infrastructure, and engaged in activities to collectively advertise and promote the
Binance brand.” Those findings of fact further state that “Binance’s reliance on a maze of
corporate entities to operate the Binance platform is deliberate; it is designed to obscure the
ownership, control, and location of the Binance platform.”
25.
Defendant Changpeng Zhao (“Zhao” also commonly known as “CZ”) is the
founder and former CEO of Binance. Zhao pled guilty to violating the Bank Secrecy Act, 31
USC 5311 et seq, by causing Binance to fail to implement an effective anti-money laundering
program. He ceased his role as CEO of Binance on November 21, 2023. Upon information
and belief, Zhao retains his ownership stake in Binance, which is an estimated 90% of the
company. The Consent Order states in its Findings of Fact that “Zhao has directly or indirectly
owned the scores of entities that collectively operate the Binance platform . . . .”
26.
Defendant Dinghua Xiao worked at Binance from approximately 2017 to
September 2019 at various Binance subsidiaries, including BitDJ in Tokyo, Japan, and Ruique
Culture Development Co, Ltd., in Shanghai, China.
27.
Defendant Samuel Wenjun Lim was the Binance Head of Compliance from
2018 through 2022.
28.
Does 1-1,000 are defendants, including but not limited to initial and subsequent
transferees of the 2021 Fraudulent Transfers (defined below), whose true names, identities and
capacities are presently unknown to the Plaintiffs. As and when the names, identities, and
capacities of these fictitiously named Defendants become known, the Plaintiffs will amend this
Complaint to set forth these Defendants’ true names, identities, and capacities and otherwise
proceed against them as if they had been named parties upon the commencement of this
adversary proceeding.
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FACTUAL BACKGROUND
A.
The Creation of the Binance and FTX Exchanges
29.
In 2017, Defendant Zhao launched Binance.com to provide services to crypto
asset investors. Since at least July 2017, Binance has operated Binance.com as an international
crypto asset trading platform. The Binance.com platform markets itself as being available to
customers in more than 170 countries. It offers trading in over 350 crypto assets and makes
available various other investment opportunities involving crypto assets. Binance operates
through a number of affiliated entities, in multiple jurisdictions, all tied to Zhao as the
beneficial owner. Today, Binance.com is the largest cryptocurrency trading exchange in the
world with a 24-hour spot trading volume of over $40 billion USD, nearly four times larger
than its second closest competitor.
30.
In 2017, Zhao and Binance created a new cryptocurrency, “Binance coin” or
“BNB.” BNB is the native cryptocurrency of the Binance exchange. From inception, Binance
touted an investment in BNB as an investment in Binance itself, including its efforts to create
a successful crypto-only asset trading platform.
31.
In 2019, Binance also introduced its “stablecoin”—a cryptocurrency that is
specifically pegged to the value of a stable asset—and called it “BUSD.” Unlike BNB, a token
that can experience significant volatility in price, BUSD is pegged to and backed by the U.S.
dollar.
32.
In 2017, Bankman-Fried co-founded Alameda LLC, a crypto trading hedge fund
organized under the laws of Delaware (together with Alameda Ltd. and its subsidiaries,
“Alameda”). By May 2019, that venture led him to found his own crypto exchange, FTX.com,
to operate as an international platform to trade and invest in cryptocurrency.
33.
On May 8, 2019, FTX launched “FTT,” FTX’s native digital asset token. FTT
is an “exchange token” proprietary to FTX that offered its holders certain benefits that flowed
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from trading or investment activity on FTX’s exchanges. FTT was designed in such a way that
it derived its total value from FTX’s enterprise value. BNB had a similar function, each of
which allowed the respective exchanges control over the coin available on the market, which
could inflate or deflate the prices.
B.
Binance Acquires Equity in FTX Entities
34.
In or about August 2019, discussions about Binance purchasing an equity stake
in FTX began. After months of negotiations, on or about November 27, 2019, Binance
purchased 250 Series A Preferred Shares in FTX Trading (equaling an approximately 20%
stake) at an issuance price of $73,200 USD per share (the “2019 Share Transfer”). To fund
the acquisition, Binance paid 1,002,739 BNB, which had a trading value of approximately
$18.3 million.
35.
As part of the 2019 Share Transfer, FTX Trading and Binance entered into an
Investor’s Rights Agreement dated November 27, 2019, whereby Binance received a right of
first refusal with respect to any new FTX Trading securities issued up to the equivalent amount
that Binance held at the time (the “Binance ROFR”). FTX co-founders Bankman-Fried and
Wang also entered into non-compete agreements on the same day in which they agreed that
they would not obtain an ownership stake in or provide services to any company competing
with Binance besides FTX.
36.
By the end of 2019, Bankman-Fried had determined to open a United States-
based exchange platform. On February 28, 2020, Zhao signed a waiver of the non-compete
allowing Bankman-Fried and Wang to hold equity interests in WRS, the parent company of
FTX’s new U.S. exchange platform. Bankman-Fried took a 52.9% equity interest in WRS.
37.
That same day, Zhao, along with other Binance executives, Defendants Dinghua
Xiao and Samuel Wenjun Lim (collectively, including Zhao, the “Binance Executives”), also
purchased 200,000 WRS Shares in the aggregate (equaling approximately 18.4% stake in
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WRS) pursuant to a founders restricted stock purchase agreements dated February 28, 2020 for
an aggregate purchase price of two dollars.
C.
The 2021 Share Repurchase
38.
In July 2021, Bankman-Fried and FTX entered into discussions with Binance
regarding a potential repurchase of the FTX Trading and WRS shares held by Binance and the
Binance Executives (the “2021 Share Repurchase”). The Parties consummated the 2021
Share Repurchase on or about July 15, 2021, as memorialized in seven written agreements
executed on the same day:
39.
1)
July 15, 2021 Share Transfer Agreement for the transfer of the FTX
Trading Series A Preferred Shares to Euclid Way (“Series A Preferred
Share Transfer Agreement”);
2)
July 15, 2021 Share Transfer Agreement for the transfer of 42,838 WRS
Shares from Xiao to Bankman-Fried (“Xiao–Bankman-Fried Share
Transfer Agreement”);
3)
July 15, 2021 Share Transfer Agreement for the transfer of 93,478 WRS
Shares from Zhao to Bankman-Fried (“Zhao–Bankman-Fried Share
Transfer Agreement”);
4)
July 15, 2021 Share Transfer Agreement for the transfer of 33,122 WRS
Shares from Lim to Wang (“Lim–Wang Share Transfer Agreement”);
5)
July 15, 2021 Share Transfer Agreement for the transfer of 10,423 WRS
Shares from Xiao to Wang (“Xiao–Wang Share Transfer
Agreement”);
6)
July 15, 2021 Share Transfer Agreement for the transfer of 20,139 WRS
Shares from Lim to Singh (“Lim–Singh Share Transfer Agreement”,
together with the Lim–Wang Share Transfer Agreement, Zhao–Wang
Share Transfer Agreement, Zhao–Bankman-Fried Share Transfer
Agreement, and the Xiao–Bankman-Fried Share Transfer Agreement,
the “FTX Executives Share Transfer Agreements”); and
7)
July 15, 2021 Termination Certificate dissolving the Initial Series A
Preferred Share Transfer Agreement and the Binance ROFR.
The 2021 Share Repurchase recouped both the FTX Trading shares purchased
by Binance in 2019 (the “FTX Trading Repurchase”) and the WRS shares purchased by
Binance Executives in 2020 (the “WRS Repurchase”). In exchange, FTX and its executives
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agreed to pay consideration consisting of BNB, FTT, and BUSD. While the true value of the
FTT, which was tied to the value of FTX, was likely zero at the time based on a proper
accounting of FTX Trading’s assets and liabilities, the BNB and BUSD transferred in
consideration for the 2021 Share Repurchase had a fair market value of approximately $1.76
billion.
40.
The WRS Repurchase prong of the 2021 Share Repurchase involved certain
FTX executives, as buyers, and the Binance Executives, as sellers, whereby the FTX executives
individually entered into the FTX Executives Share Transfer Agreements for the repurchase of
the 200,000 WRS Shares, at a price per share of $152.63, for a quantity of BUSD equal to
$30,526,000. At the time of the WRS Repurchase, WRS was balance-sheet insolvent based on
a proper accounting of the Debtors’ assets and liabilities, rendering the repurchased WRS
shares worthless.
41.
The FTX Trading Repurchase prong of the 2021 Share Repurchase involved a
newly created subsidiary of Alameda, Euclid Way, as the nominal buyer, and Defendant
Binance Capital Management Co. Ltd., as nominal seller, whereby Euclid Way agreed to
purchase 96,456,750 Series A Preferred Shares (all of Binance’s Series A Preferred Shares)3
for:
3
1)
A quantity of BUSD equal to $1,172,237,000 based on a conversion
formula specified in the Share Transfer Agreement;
2)
A quantity of BNB equal to $554,868,500 based on a conversion
formula specified in the Share Transfer Agreement; and
3)
A quantity of FTT equal to $554,868,500 based on a conversion formula
specified in the Share Transfer Agreement.
FTX Series A Preferred Shares went through a 385,827 to 1 stock split on April 30, 2020, which converted
Binance’s 250 (par value $1.00) Series A Preferred Shares into 96,546,750 (par value $0.0000026) Series A
Preferred Shares.
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42.
At the time of the FTX Trading Repurchase, FTX Trading was balance-sheet
insolvent, so it had no equity value. The repurchased FTX Trading shares therefore had no
value based on a proper accounting of FTX Trading’s assets and liabilities.
43.
While not a party to any of the agreements, Alameda (specifically, Alameda
Ltd.) was the direct transferor of all of the consideration in connection with the 2021 Share
Repurchase. For the FTT portion of the consideration, Alameda transferred the FTT directly
to one or more Binance entities. For the BUSD portion of the consideration, Alameda first
needed to obtain the BUSD. It did so through a series of transactions, including transferring at
least $721 million U.S. dollars to a New York trust maintained by an entity called “Paxos.”
Upon information and belief, Paxos, while not affiliated with Binance, served as the issuer of
BUSD on Binance’s behalf. Upon Alameda’s transfer of the U.S. Dollars to Paxos, Paxos then
“minted” an equivalent amount of BUSD and transferred it to Alameda. Alameda then
transferred the BUSD to an Alameda-controlled account on the Binance.com exchange (which
account was held in the name of Evergreen North Ltd. (“Evergreen”)).
Immediately
thereafter, upon information and belief, Alameda directed the transfer of the BUSD from the
Evergreen Binance.com account directly to one or more Binance entities. For the BNB portion
of the consideration, Alameda already held a quantity of BNB in the Evergreen account at
Binance.com. On the date of the 2021 Share Repurchase, upon information and belief,
Alameda directed the transfer of the requisite BNB directly to one or more Binance entities.
44.
On the back end, Alameda entered into “loan agreements” with each of Euclid
Way and the FTX executives for their respective obligations under the 2021 Share Repurchase.
But, upon information and belief, none of these loan agreements were ever repaid, nor was
there any intention to repay them.
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D.
The 2021 Share Repurchase Was Made By and for Insolvent Companies in
Furtherance of Bankman-Fried’s Underlying Fraud
45.
The transfers made by the Debtor Plaintiffs (funded directly by Alameda) to
Binance were made at a time when (i) Alameda as a whole, and each of its subsidiaries, were
insolvent; (ii) FTX Trading as a whole, and each of its subsidiaries, were insolvent;
(iii) Alameda and FTX Trading on a combined and consolidated basis were insolvent; and
(iv) all Debtors on a combined and consolidated basis were insolvent. The causes of the
Debtors’ insolvency, and the means by which the Debtors were able to conceal it and appear
to operate normally, are manifold and will be proven at trial in detail. Fundamentally, however,
major drivers of the Debtors’ insolvency include the following:
(i)
The FTT held by the Debtors was worth far less than the amount at which FTX
booked its FTT assets. Indeed, as Ellison testified, it would have been
“misleading” to put Alameda’s FTT holdings in Alameda’s balance sheet
around the time of the 2021 Share Repurchase because “we wouldn’t have been
able to sell all the FTT for that much and it was much larger than the rest of the
items on our balance sheet at the time.”
(ii)
Similarly, other cryptocurrencies closely tied to FTX and Bankman-Fried,
colloquially known as “Sam coins,” were overvalued on the Debtors’ balance
sheet.
(iii)
At the behest of Bankman-Fried, the Debtors concealed, and at times actively
misrepresented, material facts about their business, including Alameda’s
unlimited line of credit against FTX Trading, as well as the fact that funds
received from customers, in exchange for a demand obligation, were being used
to fund Alameda’s risky and illiquid investments. Indeed, FTX’s creditors, and
the market generally, were unaware that FTX Trading did not have the financial
resources to satisfy all customer deposits at the time of the 2021 Share
Repurchase. FTX would not have been able to continue to operate its business
had customers attempted to withdraw their deposits.
(iv)
In part due to its ongoing fraud, at the time of the 2021 Share Repurchase, the
Debtors had accrued large regulatory liabilities that were unaccounted for in the
Debtors’ financial statements, including liabilities to the Internal Revenue
Service and the Commodity Futures Trading Commission.
46.
Indeed, just prior to the 2021 Share Repurchase, Ellison prepared a balance
sheet that showed that Alameda’s net asset value was approximately negative $2.7 billion, with
liabilities of $9.4 billion.
Ellison informed Bankman-Fried that Alameda did not have
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sufficient funds to complete the 2021 Share Repurchase Agreement. Accordingly, as set forth
above, Bankman-Fried directed Alameda to take approximately $1 billion USD from FTX
customer deposits on the FTX.com platform to fund the 2021 Share Repurchase using
Alameda’s “line of credit on FTX.” The line of credit became an unlimited borrowing
mechanism which allowed the confiscation of customer deposits.
47.
The 2021 Share Repurchase was a critical component of Bankman-Fried’s
pervasive fraud involving the unauthorized use of FTX customer deposits. Ellison testified
that the 2021 Share Repurchase “confirm[ed] that [Bankman-Fried] saw Alameda’s line of
credit on FTX as a general backstop source of funds for whenever we needed funds.” Indeed,
according to Ellison, the 2021 Share Repurchase represented a significant scaling up of the
scheme, describing it as the “the first time that I can recall an amount that large being taken
from FTX.”
48.
The 2021 Share Repurchase also furthered Bankman-Fried’s deceptive scheme
to hide the vulnerability of the exchange to a run on the institution by customers seeking to
reclaim their assets deposited on the exchange. Contemporaneous communications reflect that
Bankman-Fried’s goal was to use the 2021 Share Repurchase to project confidence and strength
to the market, concealing both the underlying insolvency and the fraudulent use of customer
deposits. Just three days after the 2021 Share Repurchase, Bankman-Fried spoke with a
reporter from Forbes to discuss the transaction, and he and the reporter engaged in a follow-up
email exchange in the following days. In that exchange, the reporter asked:
[I]s there a chance we could take a look at Alameda’s asset breakdown? The
purchase of Binance’s shares was worth roughly $2.3B so profits must be
huge and the last AUM we had for Alameda was around $2.5B. If I
understand correctly, the purchase was made in cash, FTT, BUSD, and
BNB. Are these tokens solely Alameda’s? Did you spend any of your own
FTT?
Bankman-Fried answered:
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The purchase was entirely from Alameda. Yeah, it had a good last year :P
Bankman-Fried’s false statements that the 2021 Share Repurchase was funded “entirely from
Alameda” and a result of Alameda having “a good year last year” evidence Bankman-Fried’s
intent to use the 2021 Share Repurchase to convey confidence and strength to the market at a
time when the Debtors were insolvent and secretly reliant on FTX Trading’s cash and crypto
from customer deposits for liquidity.
49.
For substantially the same reasons that Alameda, FTX Trading, and the Debtors
individually and collectively were insolvent on a balance sheet basis, they were also
inadequately capitalized and unable to pay their debts as they came due. For example, the
customer funds deposited with FTX Trading that were secretly and unlawfully used to fund the
2021 Share Repurchase were callable by the customers at any time. At the time of the 2021
Share Repurchase, neither FTX Trading, nor Alameda, had the assets to satisfy customer
withdrawal requests if all customers, or even a significant portion of them, were to demand the
return of their assets at the same time because FTX had committed customer deposits, and its
own assets, to risky and illiquid investments. FTX’s inability to cover customer deposits in the
event of such a “run on the bank” scenario became clear to the world in November 2022 when
FTX collapsed, but FTX was similarly unprepared for such a scenario at the time of the 2021
Share Repurchase.
50.
While the Debtors were able to raise new equity capital, at even higher
valuations, shortly after the 2021 Share Repurchase, those transactions were tainted by the
same overarching fraud. Indeed, investors who acquired equity in the Debtors after the 2021
Share Repurchase have asserted that such investments were induced by fraud. For example,
one such investor later asserted that its $275 million equity investment was induced by material
misrepresentations by FTX about “key aspects of FTX’s operations, including, among other
things, by claiming that FTX was legally compliant, that Alameda did not have superior access
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to the FTX exchanges, and that FTX did not rehypothecate or loan customer funds.” According
to the same investor, during the diligence process, FTX also “kept hidden . . . that FTX and
Alameda were more closely linked than FTX had claimed and that Alameda had a very large
exposure to FTT, the native token of the FTX exchanges.”
51.
Based on their assertions that they were fraudulently induced to invest in FTX
Trading, preferred shareholders also asserted the right to forfeiture proceeds recoverable by the
Department of Justice from FTX insiders, leading to competing claims by the Debtors and the
preferred shareholders to such proceeds. As part of a settlement of that dispute, the Debtors
agreed to waive the Debtors’ claims for up to $230 million of those forfeiture proceeds in favor
of the preferred shareholders.
E.
Zhao’s Campaign to Destroy FTX
52.
Following the 2021 Share Repurchase, a widely reported feud arose between
Zhao and Bankman-Fried. This feud was due in part to public statements by Bankman-Fried
implying that Binance was not cooperative with government regulators and that FTX did not
want to be associated with Binance. Binance was indeed facing public accusations around the
globe of purposefully skirting banking and securities regulations, allowing money laundering
on its platform, allowing Iranian firms to trade on its platforms despite international sanctions,
allowing money to be funneled to terrorist organizations through its platform, and other illegal
conduct.
53.
In or around summer 2022, calls for governments to regulate cryptocurrency
exchanges, including a proposed regulatory scheme known as “BitLicense” in the United
States, gathered steam. FTX and Bankman-Fried adopted a pro-regulation stance, with
Bankman-Fried claiming that FTX was going to be “the most regulated and law-abiding
cryptocurrency exchange in the world.” On the other hand, many crypto enthusiasts favored
decentralization. Such enthusiasts included Zhao, who ultimately, along with Binance, were
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found to have violated numerous U.S. regulations by using an intentionally opaque common
enterprise to engage in a “calculated strategy of regulatory arbitrage to their commercial
benefit.” Some crypto influencers, who, upon information and belief, were partially funded by
Binance, published explosive tweets calculated to turn customers against FTX, in part because
of its public support for crypto regulation. Such influencers were bringing Bankman-Fried’s
pro-regulation efforts to the crypto community’s attention. Tweets, YouTube videos, Telegram
groups, TikTok videos, and Reddit posts dedicated to criticizing Bankman-Fried’s regulatory
efforts were widely disseminated, sometimes getting hundreds of thousands of views and
comments.
54.
Around this time, FTX management began to suspect Binance was engaged in
a “months-long coordinated [fear, uncertainty, and doubt] campaign against FTX.” On the
evening of November 6, 2022, Bankman-Fried drafted a document titled “Coordinated FUD”
(i.e. fear, uncertainty, and doubt) in which he detailed his theory. FTX management were not
the only ones who suspected this. The Examiner in the above-captioned chapter 11 cases noted
in the Report of Robert J. Cleary, Examiner, that “after the Voyager Digital auction closed [in
late October 2022], there was concern that Binance and CZ were putting out negative press
statements in order to derail the FTX Group’s purchase of Voyager Digital’s assets.” In a U.S.
Senate hearing, an investor close to Bankman-Fried testified that Zhao and Bankman-Fried
“were at war with each other, and one put the other out of business, intentionally.”
F.
Zhao Deliberately Causes a Bank Run on FTX
55.
On or about November 1, 2022, confidential Alameda financials were leaked to
CoinDesk, a news and media company that covers cryptocurrency and blockchain technology
and industries. Within FTX, it was strongly suspected that Binance and Zhao were involved
in the leak. On November 2, 2022, CoinDesk published its now-infamous article, Divisions in
Sam Bankman-Fried’s Crypto Empire Blur on His Trading Titan Alameda’s Balance Sheet
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(Ian Allen), revealing, among other things, that Alameda’s assets were made up largely of FTT,
raising serious concerns about both Alameda’s and FTX Trading’s financial condition.
56.
On November 6, 2022, Zhao sent the following tweets (the “November 6 Tweet
Thread”):
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57.
Zhao’s November 6 Tweet Thread was false and misleading in multiple
respects. First, it is known from the circumstances that Zhao’s apparent liquidation of FTT
and related public statements were part of a deliberate strategy to destroy FTX, and improve
Binance’s market position. Therefore, contrary to Zhao’s denial, Binance’s highly-publicized
apparent liquidation of its FTT was indeed a “move against a competitor” and was not, as Zhao
indicated, “due to recent revelations.” As Ellison testified, “if [Zhao] really wanted to sell his
FTT, he wouldn’t preannounce to the market that he was going to sell it. He would just sell it
[…] his real aim in that tweet, as I saw it, was not to sell his FTT, but to hurt FTX and
Alameda.”4 And, as Bankman-Fried observed, Binance “very publicly” sold its FTT to
“maximize the PR impact of it.” Similarly, in a Senate Hearing, an FTX investor stated: “All
of a sudden, in social media, CZ is asking for another $500 million. He wants to do a block
trade of FTT, or the proprietary token of FTX. He wants to convert it back to fiat. Why would
you put that out there? You know it is going to push down the value of that coin dramatically,
and that is exactly what happened.”
58.
Second, contrary to Zhao’s statement, Binance’s apparent liquidation of FTT
was not done in a way that would “minimize [] market impact.” Rather, as set forth above,
Zhao’s intent was to maximize market impact and to cause a decline in the price of FTT, thereby
harming FTX and increasing Binance’s market share. Indeed, by the time Zhao sent the first
tweet in the November 6 Tweet Thread, Binance had apparently already sold a massive amount
of FTT in a single trade. Zhao publicly confirmed such trade in a tweet Zhao sent later the
same day:
4
Caroline Ellison testified that Zhao’s tweet thread “brought concerns back and made them even stronger”
because it referred to “recent revelations” that came to light, “suggesting that Binance is aware of negative
news about FTX and Alameda.”
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By this later tweet, Zhao confirmed that a November 5 tweet from an account called “Whale
Alert” regarding the transfer of 22,999,999 FTT was indeed “part of” Zhao’s announced
liquidation of its FTT. This amount was greater than the 18,516,602 FTT that Binance received
in the 2021 Share Repurchase. Whether or not Binance had actually sold this FTT is unclear,
but what is clear is that Zhao wanted the market to believe he had done so.
59.
As it was intended to do, Zhao’s November 6 Tweet Thread sparked a market
panic and a run on the bank at FTX. As the Examiner in the above-captioned chapter 11 cases
reported, Zhao’s announcement that “Binance would be liquidating its sizeable FTT holdings
. . . caused a rapid sell off of FTT.” Customer net withdrawals went from averaging $18 million
per hour over the period from October 31, 2022 and November 6, 2022 (prior to the November
6 Tweet Thread) to around $150 million per hour from November 6, 2022 and November 7,
2022 (after the November 6 Tweet Thread). Alameda contributed the vast majority of any
liquid assets to cover the withdrawals, but at the rate customers were withdrawing funds, FTX
management knew, in the words of FTX co-founder, Gary Wang, “FTX was not fine and assets
were not fine because FTX did not have enough assets for customer withdrawals.”
60.
Later in the day on November 6, 2022, Zhao published the following tweet (the
“November 6 Risk-Management Tweet” and, together with the November 6 Tweet Thread,
the “November 6 False Tweets”):
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61.
The November 6 Risk-Management Tweet was false and misleading in that, as
discussed above, Binance’s apparent liquidation of its FTT and Zhao’s public announcements
regarding the same, were not “just post-exit risk management.” Instead, as discussed above,
they were part of a deliberate strategy to cause a run on FTX as a means to destroy Binance’s
competitor FTX and improve Binance’s market position.
62.
Upon information and belief, the run on the bank at FTX would not have
occurred had Zhao not misrepresented his true intentions in sending the November 6 False
Tweets. To the contrary, if the market had been aware that Zhao’s true intention was to harm
FTX, it is highly unlikely that the November 6 False Tweets would have sparked the panic that
it did. Customers would have understood that Zhao’s actions were motivated by a personal
and professional feud between FTX and Binance (and their respective founders) and not by
sincere concerns about “risk management” or “recent revelations.”
63.
Unquestionably, the panic that Binance and Zhao created through the November
6 False Tweets caused financial harm to FTX and its creditors. Even assuming that the Debtors
were insolvent at the time of the November 6 Tweet Thread, Binance and Zhao’s statements
destroyed value that would have otherwise been recoverable by FTX’s stakeholders. As
discussed above, the resulting panic caused a surge in withdrawal and repayment requests by
customers and creditors. Not only did the withdrawals and repayments themselves diminish
FTX’s assets, but value was also destroyed because, among other reasons, the market panic
forced FTX to liquidate assets at discounted prices to generate liquidity to address the crisis,
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including to satisfy the withdrawal and repayment requests. The same panic forced FTX to
respond to emergency collateral calls by FTX’s lenders, which also ultimately diminished the
value recoverable by FTX’s stakeholders.
64.
Given the unprecedented rate of withdrawals following the November 6 False
Tweets, FTX was in desperate need of an emergency infusion of capital. Bankman-Fried noted
FTX would “take whatever we can get, at whatever terms make people comfortable.” FTX
formed an “emergency funding team” to reach out to potential investors. Around the same time,
Bankman-Fried estimated that FTX only had a short time before it would run out of liquidity
to match customer withdrawals.
65.
Around 1 a.m. on November 8, 2022, Bankman-Fried called Zhao. Upon
information and belief, during this phone call, Bankman-Fried informed Zhao that FTX would
soon find itself unable to satisfy customer withdrawal requests, in part because Alameda had
been borrowing large amounts from FTX.com customer deposits, necessitating the emergency
financing that Bankman-Fried was requesting from Zhao. Bankman-Fried reflected to the FTX
team that Zhao “seemed receptive” but needed to consider the proposal.
66.
Only having considered Bankman-Fried’s proposal for approximately one hour,
around 2:30 a.m Zhao confirmed the “[r]ough proposal from us would be: we do a full take
over, cover all user asset shortage, to minimize damage to the market and the user . . . . [W]e
can move quickly.” Immediately thereafter, Bankman-Fried redirected FTX management’s
efforts toward building out a transaction with Binance where “CZ gets all dollars, tokens, and
FTX.com” and FTX would halt processing customer withdrawals from the FTX.com platform.
67.
On November 8, 2022, Bankman-Fried and Zhao executed a letter of intent on
behalf of their respective companies (the “Letter of Intent”). The Letter of Intent provided
that, subject to due diligence to be completed within 30 days, Binance would acquire FTX
Trading and inject capital sufficient to address FTX’s liquidity issues. The Letter of Intent also
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included an exclusivity period in which FTX agreed not to seek financing from any other
investors.
68.
A few hours later Zhao tweeted (the “November 8 Tweets”):
69.
Based on the Letter of Intent, and the November 8 Tweets announcing the same,
FTX leadership halted communications with investors. As one officer at FTX wrote to a
colleague at this time, “In light of [the exclusivity provision], don’t think it makes sense to
engage with” certain other potential investors. Instead, FTX employees, including FTX
executives, quickly got to work gathering the documents requested by Binance. Binance sent
over a revised due diligence request list around 12:00 p.m. on November 9, 2022. Around the
same time, FTX employees and Binance employees started having kick-off calls to determine
the scope of the due diligence. The general counsel of FTX.US. wrote on November 9, 2022,
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“[s]poke to Binance legal this morning as a diligence kick-off call. Was very high level and
they said they would follow-up . . . .”
70.
At 3:00 p.m. on November 9, 2022, while FTX employees were still working
on Binance’s updated diligence requests and despite Zhao’s warning that there was “a lot to
cover and [the deal] will take some time,” Binance published a tweet thread announcing that it
was backing out “as a result of corporate due diligence” (the “November 9 Tweets”).
71.
According to Ellison, “within a day” after Binance’s November 9 Tweets,
everything at FTX fell apart.
72.
As stated above, at the time Zhao entered into the Letter of Intent, he had, upon
information and belief, already been made aware of the “mishandled” customer funds during
his conversation with Bankman-Fried. This is contrary to Binance’s representation in the
November 9 Tweets that he learned that fact after entering into the Letter of Intent. In addition,
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Zhao was also aware that the Debtors were insolvent when he entered into the Letter of Intent.
Moreover, upon information and belief, during the approximately 24-hour period during which
Binance supposedly conducted “due diligence,” no new material information was provided to
Zhao and Binance in the diligence process that would have revealed new issues beyond
Binance’s “control or ability to help,” causing Binance to withdraw.
73.
Based on these circumstances, it is now apparent that Binance’s execution of
the Letter of Intent, as well Zhao’s November 8 Tweets (announcing that Binance “intend[ed]
to fully acquire FTX.com”) and Binance’s November 9 Tweets (withdrawing from the Letter
of Intent “as a result of corporate due diligence”) were false and misleading in that Zhao and
Binance never intended to consummate the contemplated acquisition.
Instead, upon
information and belief, the Letter of Intent, and Zhao’s public statements, advanced Zhao’s
goal of destroying FTX by (i) preventing FTX from seeking alternate financing, and
(ii) allowing Zhao to create the impression, through Binance’s November 9 Tweets, that
Binance had seen something in the due diligence regarding FTX’s finances that was even worse
than what the public already believed.
74.
FTX and its creditors were harmed by Binance’s and Zhao’s false and
misleading statements that they intended to acquire FTX, as well as their false and misleading
subsequent statements regarding the reason why they decided not to acquire FTX. This series
of false communications eliminated any possibility that FTX would obtain adequate emergency
financing from any other source. They also eliminated any possibility that FTX could resume
and stabilize its business.
75.
As discussed above, FTX.com and FTX.US. experienced a significant increase
in gross and net withdrawals following the November 6 False Tweets. On November 6 and
November 7, 2022, FTX.com and FTX.US. exchanges processed approximately $6 billion in
net customer withdrawals, with many of the customers withdrawing more than 90% of their
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account value. This unprecedented increase in withdrawals led to withdrawals being halted on
the FTX.com exchange on November 8, 2022.
76.
Notably, the withdrawal rate increased slightly following the publication of the
CoinDesk article on November 2, 2022 and then stabilized in the days following. Within hours
of the November 6 False Tweets, however, the withdrawal rate skyrocketed to unmanageable
levels. Furthermore, the publication of the CoinDesk article coincided with a slight dip in the
price of FTT, but some of that value had been recuperated in the days following publication.
However, after the Binance and Zhao’s tweets, the price of FTT plummeted from $24.36 to
$2.30.
77.
On November 10, 2022, the Securities Commission of The Bahamas petitioned
the Supreme Court of The Bahamas for the winding up of FTX DM, the FTX.com entity
holding the license to operate the exchange in The Bahamas, as a result of, among other things,
the fallout from the Letter of Intent, the November 6 Tweet Thread, the November 8 Tweets,
and the November 9 Tweets. The request was provisionally granted placing FTX DM into
provisional liquidation. Almost simultaneously, on November 11, 2022, Bankman-Fried
appointed John J. Ray III (“Ray”) as CEO, withdrawing his managerial power for the rest of
the FTX enterprise. As his first act, Ray directed the filing of the above-captioned chapter 11
cases on an emergency basis on November 11, and November 14, 2022.
78.
Additional factual background relating to FTX’s businesses and the
commencement of the above-captioned chapter 11 cases is set forth in the Declaration of John
J. Ray III in Support of Chapter 11 Petitions and First Day Pleadings [D.I. 24], the Declaration
of Edgar W. Mosley II in Support of Chapter 11 Petitions and First Day Pleadings [D.I. 57],
the Supplemental Declaration of John J. Ray III in Support of First Day Pleadings [D.I. 92],
and the Supplemental Declaration of Edgar W. Mosley II in Support of First Day Pleadings
[D.I. 93].
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79.
After November 6, 2022, Binance saw a significant growth and increased
activity in the cryptocurrency market. Specifically, Binance experienced a surge in new users,
increase in trading volume and liquidity, and a significant increase in Binance’s market share.
In fact, Binance’s official blog stated that “[t]he biggest winner in 2022, Binance, gained nearly
20% market share.”
CAUSES OF ACTION
FIRST CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Constructive) Against All Defendants
[11 U.S.C. §§ 548(a)(1)(B) and 550]
80.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
81.
Under 11 U.S.C. § 548(a)(1)(B), a debtor may avoid any transfer of an interest
of the debtor in property or any obligation incurred by the debtor that was made or incurred on
or within 2 years before the date of the filing of the petition if the debtor (i) received less than
reasonably equivalent value in exchange for such transfer or obligations; and (ii) was insolvent;
engaged or was about to engage in a business or transaction for which the remaining assets
were unreasonably small in relation to the business or transaction; or intended to incur, or
believed that the debtor would incur debts beyond its ability to pay such debts as they became
due.
82.
As set forth above, in connection with the 2021 Share Repurchase, one or more
of the Debtor Plaintiffs made the following transfers within two years of the Petition Date (the
“2021 Fraudulent Transfers”) to or for the benefit of the Defendants as follows:
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Transferee
Binance (with Binance
Capital Management as
nominal counterparty)
Binance (with Binance
Capital Management as
nominal counterparty)
Binance (with Binance
Capital Management as
nominal counterparty)
Binance (with Zhao as
nominal counterparty)
Binance (with Xiao as
nominal counterparty)
Binance (with Xiao as
nominal counterparty)
Binance (with Lim as nominal
counterparty)
Binance (with Lim as nominal
counterparty)
83.
Amount Received
Transferor and Stated
Purpose Transfer
1,172,237,000 in BUSD
From Alameda, for FTX
Trading Repurchase
18,516,602 in FTT
From Alameda, for FTX
Trading Repurchase
1,764,041 in BNB
From Alameda, for FTX
Trading Repurchase
14,267,547.14 in BUSD
1,590,862.49 in BUSD
6,538,363.94 in BUSD
5,055,410.864 in BUSD
3,073,815.57 in BUSD
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
From Alameda, for WRS
Repurchase
The 2021 Fraudulent Transfers were made as part of a single overall transaction,
the 2021 Share Repurchase, and should be treated as a single transfer for purposes of this action.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent Transfers
individually, constituted a transfer of an interest in the property of the Debtor Plaintiffs.
84.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made in exchange for less than fair consideration and less than
reasonably equivalent value.
85.
Each of (i) FTX Trading, (ii) Alameda, (iii) FTX Trading and Alameda on a
combined and consolidated basis, and (iv) all Debtors on a combined and consolidated basis,
were insolvent at the time of, or became insolvent as a result of, the 2021 Fraudulent Transfers.
86.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, were engaged in a business or
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transaction for which the remaining assets were unreasonably small in relation to the business
or transaction.
87.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, intended to, believed, or reasonably
should have believed that they would incur debts beyond their ability to pay such debts as they
became due.
88.
By virtue of the foregoing, the 2021 Fraudulent Transfers collectively, and each
of the 2021 Fraudulent Transfers individually, were fraudulent transfers avoidable under
section 548 of the Bankruptcy Code and the Debtor Plaintiffs are entitled to avoid and recover
each of the 2021 Fraudulent Transfers under sections 548 and 550 of the Bankruptcy Code.
89.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
90.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of one or more of the
2021 Fraudulent Transfers.
91.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each Defendant pursuant to section 550(a) of the Bankruptcy Code.
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SECOND CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Constructive) Against All Defendants
[11 U.S.C. §§ 544, and 550, and applicable state law including Uniform Fraudulent Transfer
Act as enacted in Delaware or other applicable state law]
92.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein. Under section 544(b) of the Bankruptcy Code, any debtor may avoid
any transfer of an interest of the debtor in property or any obligation incurred by the debtor that
is avoidable under applicable law by a creditor holding an unsecured claim that is allowable
under section 502 of the Bankruptcy Code or that is not allowable only under section 502(e) of
the Bankruptcy Code. The phrase “under applicable law” has been interpreted to include the
state fraudulent transfer laws that would govern potentially fraudulent transactions. The Debtor
Plaintiffs include Alameda LLC, a limited liability company organized under the laws of the
State of Delaware, as well as multiple other entities organized under the laws of the State of
Delaware.
93.
Under the Uniform Fraudulent Transfer Act as enacted in Delaware, a transfer
is fraudulent as to present creditors where the debtor made the transfer without receiving a
reasonably equivalent value in exchange for the transfer and the debtor was insolvent at that
time or the debtor became insolvent as a result of the transfer. Del. Code tit. 6, § 1305. A
transfer is fraudulent as to present and future creditors where the debtor did not receive
reasonably equivalent value for the transfer and the debtor (a) was engaged or was about to
engage in a business or a transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction; or (b) intended to incur, or
believed that the debtor would incur debts beyond the debtor’s ability to pay as they became
due. Del. Code tit. 6, § 1304.
94.
In connection with the 2021 Share Repurchase, one or more of the Debtor
Plaintiffs made the 2021 Fraudulent Transfers to or for the benefit of the Defendants.
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95.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, constituted a transfer of an interest in the property of the Debtor
Plaintiffs.
96.
At the times of, and subsequent to, each of the 2021 Fraudulent Transfers,
Debtor Plaintiffs had at least one creditor with an allowable unsecured claim for liabilities,
which remained unsatisfied as of the Petition Date.
97.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made in exchange for less than fair consideration and less than
reasonably equivalent value.
98.
Each of (i) FTX Trading, (ii) Alameda, (iii) FTX Trading and Alameda on a
combined and consolidated basis, and (iv) all Debtors on a combined and consolidated basis,
were insolvent at the time of, or became insolvent as a result of, the 2021 Fraudulent Transfers.
99.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, were engaged in a business or
transaction for which the remaining assets were unreasonably small in relation to the business
or transaction.
100.
At the time of the 2021 Share Repurchase, each of (i) FTX Trading,
(ii) Alameda, (iii) FTX Trading and Alameda on a combined and consolidated basis, and
(iv) all Debtors on a combined and consolidated basis, intended to, believed, or reasonably
should have believed that they would incur debts beyond its ability to pay such debts as they
became due.
101.
By virtue of the foregoing, the 2021 Fraudulent Transfers collectively, and each
of the 2021 Fraudulent Transfers individually, were fraudulent transfers avoidable under
Delaware law or other applicable state law by a creditor holding an unsecured claim that is
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allowable under section 502 of the Bankruptcy Code, and the Debtor Plaintiffs are entitled to
avoid and recover each of the 2021 Fraudulent Transfers under sections 544 and 550 of the
Bankruptcy Code.
102.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
103.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of one or more of the
2021 Fraudulent Transfers.
104.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each defendant pursuant to section 550(a) of the Bankruptcy Code.
THIRD CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Intentional) Against All Defendants
[11 U.S.C. §§ 548(a)(1)(A) and 550]
105.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
106.
Under 11 U.S.C. § 548(a)(1)(A), a debtor may avoid any transfer of an interest
of the debtor in property or any obligation incurred by the debtor that was made or incurred on
or within 2 years before the date of the filing of the petition date if the debtor made such transfer
or incurred such obligation with actual intent to hinder, delay, or defraud a creditor.
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107.
In connection with the 2021 Share Repurchase, one or more of the Debtor
Plaintiffs made the 2021 Fraudulent Transfers to or for the benefit of the Defendants.
108.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, constituted a transfer of an interest in the property of the Debtor
Plaintiffs.
109.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made with the actual intent to hinder, delay, or defraud present
and future creditors. As set forth above, a large portion of the of the 2021 Share Repurchase
was secretly funded using assets deposited on the FTX Trading exchange by FTX customers,
who were all creditors of FTX. As set forth above, the 2021 Share Repurchase was also in
furtherance of Bankman-Fried’s fraud insofar as it was used to convey confidence and strength
to the market at a time when the Debtors were insolvent and secretly reliant on customer
deposits for liquidity.
110.
By virtue of the foregoing, the 2021 Fraudulent Transfers collectively, and each
of the 2021 Fraudulent Transfers individually, were fraudulent transfers avoidable under
section 548(a)(1)(A) of the Bankruptcy Code, and the Debtor Plaintiffs are entitled to avoid
and recover each of the 2021 Fraudulent Transfers under sections 548(a)(1)(A) and 550 of the
Bankruptcy Code.
111.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
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112.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of the initial transferee.
113.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each defendant pursuant to section 550(a) of the Bankruptcy Code.
FOURTH CLAIM FOR RELIEF
Avoidance and Recovery of Fraudulent Transfers (Intentional) Against All Defendants
[11 U.S.C. §§ 544, and 550, and applicable state law including the Uniform Fraudulent
Transfer Act as enacted in Delaware or other applicable state law]
114.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
115.
Under 11 U.S.C. § 544(b), a debtor may avoid any transfer of an interest of the
debtor in property or any obligation incurred by the debtor that is avoidable under applicable
law by a creditor holding an unsecured claim that is allowable under 11 U.S.C. § 502 or that is
not allowable only under 11 U.S.C. § 502(e). The phrase “under applicable law” has been
interpreted to include state fraudulent transfer laws that would govern potentially fraudulent
transactions.
The Debtor Plaintiffs include Alameda LLC, a limited liability company
organized under the laws of the State of Delaware, as well as multiple other entities organized
under the laws of the State of Delaware.
116.
Under the Uniform Fraudulent Transfer Act as enacted in Delaware, a transfer
is fraudulent as to present and future creditors if the transfer was made with actual intent to
hinder, delay or defraud any creditor of the debtor. Del. Code tit. 6, § 1304.
117.
In connection with the 2021 Share Repurchase, one or more of the Debtor
Plaintiffs made the 2021 Fraudulent Transfers to or for the benefit of the Defendants.
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118.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, constituted a transfer of an interest in the property of the Debtor
Plaintiffs.
119.
The 2021 Fraudulent Transfers collectively, and each of the 2021 Fraudulent
Transfers individually, were made with the actual intent to hinder, delay, or defraud present or
future creditors. As set forth above, a large portion of the of the 2021 Share Repurchase was
secretly funded using assets deposited on the FTX Trading exchange by FTX customers, who
were all creditors of FTX. As further set forth above, the 2021 Share Repurchase was also in
furtherance of Bankman-Fried’s fraud insofar as it was used to convey confidence and strength
to the market at a time when the Debtors were insolvent and secretly reliant on customer funds
for liquidity.
120.
At the times of, and subsequent to, each of the 2021 Fraudulent Transfers, the
Debtor Plaintiffs had at least one creditor with an allowable unsecured claim for liabilities,
which remained unsatisfied as of the Petition Date.
121.
By virtue of the foregoing, each of the 2021 Fraudulent Transfers was a
fraudulent transfer avoidable under 11 U.S.C. §544 and applicable state law including the
Uniform Fraudulent Transfer Act as enacted in Delaware, by a creditor holding an unsecured
claim that is allowable under 11 U.S.C. § 502, and the Debtor Plaintiffs are entitled to avoid
and recover each of the 2021 Fraudulent Transfers under 11 U.S.C. §§ 544 and 550.
122.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
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123.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made or an immediate or mediate transferee of the initial transferee.
124.
To the extent that one or more of the 2021 Fraudulent Transfers is avoided, the
Debtor Plaintiffs may recover the property transferred, or the value of the transferred property,
from each defendant pursuant to section 550(a) of the Bankruptcy Code.
FIFTH CLAIM FOR RELIEF
Recovery of Fraudulent Transfers Against All Defendants
[11 U.S.C. § 550]
125.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
126.
Under section 550(a) of the Bankruptcy Code, “[e]xcept as otherwise provided
in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549,
553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property, from (1) the initial transferee
of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate
or mediate transferee of such initial transferee.”
127.
Upon information and belief, each Defendant is an initial transferee of one or
more of the 2021 Fraudulent Transfers, an entity for whose benefit one or more of the 2021
Fraudulent Transfers was made, or an immediate or mediate transferee of the initial transferee.
128.
Pursuant to 11 U.S.C. § 550(a), the Debtor Plaintiffs are entitled to recover the
property they transferred in connection with the 2021 Fraudulent Transfers or the value of such
property.
SIXTH CLAIM FOR RELIEF
Injurious Falsehood Against Binance and Changpeng Zhao
129.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
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130.
Under applicable law, a person who publishes a false statement harmful to the
interests of another is subject to liability for pecuniary loss resulting to the other if (1) the
person intends for publication of the statement to result in harm to interests of the other having
a pecuniary value, or either recognizes or should recognize that it is likely to do so, and (2) the
person knows that the statement is false or acts in reckless disregard of its truth or falsity.
131.
As set forth above, the following statements by Binance Defendants and Zhao,
individually and collectively, were false and misleading: (1) the November 6 False Tweets,
(2) Binance’s execution of the Letter of Intent, (3) the November 8 Tweets, and (4) the
November 9 Tweets (collectively the “Binance False Statements”). Upon information and
belief, the Binance Defendants and Zhao maliciously intended for publication of the Binance
False Statements to harm the pecuniary interests of FTX. In particular, the Binance Defendants
and Zhao, through the Binance False Statements, intended to trigger a run on the bank by
publicizing Binance’s apparent liquidation of FTT. They then purported to come to the rescue,
publicly positioning Binance as the first third-party to gain access to FTX’s books and records
and other confidential information, thereby preventing FTX from seeking alternative financing
in the process and, subsequently, creating the impression that Binance had seen something in
the due diligence regarding FTX’s financials that was even worse than what the public already
believed. Upon information and belief, the Binance Defendants and Zhao knew that these
statements were false. In addition, the Binance False Statements were the partial basis for the
Securities Commission of The Bahamas seeking a winding up order for Plaintiff FTX DM.
132.
As a direct and proximate result of the Binance False Statements, Plaintiffs have
suffered damages in an amount to be determined at trial. The Binance Defendants and Zhao
are jointly and severally liable to the Plaintiffs for such damages, plus pre- and post-judgment
interest, punitive damages, and all other relief to which Plaintiffs are entitled as a result of the
misconduct alleged herein.
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SEVENTH CLAIM FOR RELIEF
Fraud Against Binance and Changpeng Zhao
133.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
134.
Under applicable law, a claim for fraud requires proof of (1) a false
representation, (2) a defendant's knowledge or belief of its falsity or his reckless indifference
to its truth, (3) a defendant's intention to induce action, (4) reasonable reliance, and (5) causally
related damages.
135.
As set forth above, the Binance False Statements, collectively and individually,
were false, and the Binance Defendants and Zhao made the Binance False Statements with
knowledge of their falsity. The Binance Defendants and Zhao made the Binance False
Statements with the intent to induce FTX’s customers to withdraw their deposits in order to
harm FTX, and FTX’s customers reasonably relied in the November 6 False Tweets when they
submitted an unprecedented surge in withdrawal requests in the following days. In addition,
with respect to Binance’s execution of the Letter of Intent and the November 8 Tweets
specifically, those statements were also intended to cause FTX to cease seeking alternative
financing, and FTX indeed ceased its search for alternative financing in reasonable reliance
upon those statements.
136.
As a direct and proximate result of the Binance False Statements collectively
and individually, and the reasonable reliance thereon, Plaintiffs have suffered damages in an
amount to be determined at trial. The Binance Defendants and Zhao are jointly and severally
liable to Plaintiffs for such damages, plus pre- and post-judgment interest, punitive damages,
and all other relief to which Plaintiffs are entitled as a result of the misconduct alleged herein.
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EIGHTH CLAIM FOR RELIEF
Intentional Misrepresentation Against Binance and Changpeng Zhao
137.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
138.
Under applicable law, an intentional misrepresentation claim requires proof of
(1) deliberate concealment by the defendant of a material past or present fact, or silence in the
face of a duty to speak; (2) scienter on the part of the defendant; (3) the defendant’s intent to
induce plaintiff's reliance upon the concealment; (4) causation; and (5) damages resulting from
the concealment.
139.
As set forth above, the Binance False Statements, collectively and individually,
concealed material facts, and the Binance Defendants and Zhao made the Binance False
Statements with the intent to conceal such facts. Specifically, in making the Binance False
Statements, the Binance Defendants and Zhao concealed the facts that (i) they were made in a
deliberate attempt to destroy their competitor, FTX and (ii) Binance never intended to acquire
FTX. The Binance Defendants and Zhao knew the Binance False Statements were false, and
nonetheless made the statements with the intent to induce FTX’s customers to withdraw their
deposits in order to harm FTX. FTX’s customers reasonably relied on the November 6 False
Tweets when they submitted an unprecedented surge in withdrawal requests in the following
days. In addition, with respect to Binance’s execution of the Letter of Intent and the November
8 Tweets specifically, those statements were also intended to cause FTX to cease seeking
alternative financing, and FTX indeed ceased its search for alternative financing in reasonable
reliance upon those statements.
140.
As a direct and proximate result of the Binance False Statements collectively
and individually, Plaintiffs have suffered damages in an amount to be determined at trial. The
Binance Defendants and Zhao are jointly and severally liable to the Plaintiffs for such damages,
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plus pre-and post-judgment interest, punitive damages, and all other relief to which Plaintiffs
are entitled as a result of the misconduct alleged herein.
NINTH CLAIM FOR RELIEF
Unjust Enrichment Against Binance and
Changpeng Zhao
141.
Plaintiffs repeat and reallege each of the allegations set forth above and below
as if fully set forth herein.
142.
Under applicable law, a cause of action for unjust enrichment exists where one
party unjustly retains a benefit to the loss of another without justification, and where there is
no other legal remedy at law.
143.
As set forth above, the Binance Defendants and Zhao made the Binance False
Statements with the intent to harm FTX and improve Binance’s market position. FTX suffered
the intended harm, and Binance’s customer base and revenues increased as a result.
144.
As a result of the Binance False Statements collectively and individually,
Plaintiffs have suffered damages in an amount to be determined at trial. The Binance
Defendants and Zhao are jointly and severally liable to the Plaintiffs for such damages, plus
pre- and post-judgment interest, punitive damages, and all other relief to which Plaintiffs are
entitled as a result of the misconduct alleged herein.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that this Court enter judgment in their
favor, as requested above, and as further set forth below:
A.
For an order avoiding and setting aside the transfers identified in Claims
I–V;
B.
For an order directing each respective initial, immediate, and/or mediate
transferee of the transfers identified in Claims I-V to return to FTX the
property transferred or pay the value of such property, as determined by
the Court;
C.
For an order compelling Defendants to pay to Plaintiffs, in restitution,
an amount not less than that which will make Plaintiffs whole;
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D.
For an award of compensatory damages in an amount to be determined
at trial;
E.
For an award of punitive damages in an amount to be determined at trial;
F.
For prejudgment interest;
G.
For costs of suit; and
H.
For such additional and further relief that Plaintiffs may be entitled to
under law or equity.
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Dated: November 10, 2024
Wilmington, Delaware
/s/ Brendan J. Schlauch
RICHARDS, LAYTON & FINGER, P.A.
Kevin Gross (No. 209)
Paul N. Heath (No. 3704)
Brendan J. Schlauch (No. 6115)
Robert C. Maddox (No. 5356)
One Rodney Square
920 N. King Street
Wilmington, DE 19801
Telephone: (302) 651-7700
Facsimile:
(302) 651-7701
gross@rlf.com
heath@rlf.com
schlauch@rlf.com
maddox@rlf.com
-and/s/ J. Christopher Shore
WHITE & CASE LLP
J. Christopher Shore (admitted pro hac vice)
Brian D. Pfeiffer (admitted pro hac vice)
Colin West (pro hac vice pending)
Ashley R. Chase (admitted pro hac vice)
Brett L. Bakemeyer (admitted pro hac vice)
1221 Avenue of the Americas
New York, New York 10020
Telephone: (212) 819-8200
cshore@whitecase.com
brian.pfeiffer@whitecase.com
cwest@whitecase.com
ashley.chase@whitecase.com
brett.bakemeyer@whitecase.com
Attorneys for the Plaintiffs
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