On October 2, Binance.US and its CEO, Changpeng Zhao (CZ), found themselves at the center of a class-action lawsuit filed in the Northern California District Court. The suit alleges that they engaged in actions to monopolize the cryptocurrency market, which violated federal and California unfair competition laws, specifically in relation to the cryptocurrency exchange FTX. The plaintiff in the case is Nir Lahav, identified as a California resident.
The lawsuit revolves around a tweet made by CZ on Twitter (formerly known as Twitter) in early November, just before FTX encountered significant issues. These tweets coincided with Binance's decision to liquidate its holdings of FTX utility token FTT (FTT) on November 6. The plaintiffs claim that Binance owns up to 5% of all FTT tokens. Following this, CZ tweeted that Binance had signed a letter of intent to acquire FTX but withdrew from the deal the next day. The lawsuit alleges:
"Zhao publicly disseminated information [about the withdrawal of the tender offer] on Twitter and other social media platforms to harm the FTX entities, ultimately leading to the hasty and unprecedented collapse of the FTX entities."
The lawsuit proceeds to defend the SEC's cryptocurrency policy, referencing important Supreme Court decisions such as Howey and Reves.
Furthermore, the suit alleges that CZ's tweet on November 6, stating, "Due to recent revelations [sic], we have decided to liquidate all remaining FTT on the books," was misleading and false. The plaintiffs assert that this post was intended to artificially lower the price of FTT in the market. They point to another part of CZ's tweet in which he stated, "We are not against anyone... But we will not support those who lobby behind their backs against other industry players," as evidence that Binance was opposed to FTX CEO Sam Bankman-Fried's "regulatory efforts."
The lawsuit contends that CZ's proposed acquisition of FTX was not made in good faith and suggests that the incident played a role in FTX's eventual downfall:
"Zhao’s tweet caused the FTT price to drop from $23.1510 to $3.1468. This significant drop plunged FTX Entities into bankruptcy without the FTX Entities’ executives and board of directors having the opportunity [sic] to salvage the situation and put in place safety measures to protect its customers and end users."
This lawsuit is built on seven counts and seeks various forms of compensation, including monetary damages, court costs, and restitution of alleged ill-gotten gains. The suit also mentions the potential for thousands of members to join the proposed class.
It's noteworthy that both Binance and FTX have been dealing with regulatory issues from the SEC. A criminal case against Sam Bankman-Fried is scheduled to commence on October 4 in New York. In response to potential claims of unfair competition, CZ addressed the matter in the same tweet cited in the lawsuit, stating, "Regarding any speculation as to whether this was a move against a competitor, this is not the case." However, this statement did not prevent ongoing speculation and public discussions within the cryptocurrency community.
