Nikolas Sargeant
Former Binance CEO Changpeng "CZ" Zhao has formally requested a bankruptcy court dismiss him from a $1.76 billion clawback lawsuit filed by the FTX trust. The legal challenge centers on jurisdictional arguments as the now-bankrupt cryptocurrency exchange seeks to recover funds allegedly transferred improperly by convicted founder Sam Bankman-Fried.
According to Bloomberg Law, Zhao's defense strategy focuses on his United Arab Emirates residency status and challenges the FTX trust's claim that Delaware courts maintain jurisdiction over him. The motion filed Monday in the US Bankruptcy Court for the District of Delaware represents CZ's latest effort to distance himself from FTX's collapse aftermath.
"The complaint does not establish general jurisdiction because it does not allege that Mr. Zhao is 'at home' in Delaware," Zhao argued in the dismissal motion. He emphasized that the claims have minimal relevance to the United States and that involved regulations lack "extraterritorial application," suggesting the case should be heard elsewhere.
FTX Targets 2021 Share Purchase as Fraudulent Transaction
The $1.76 billion recovery lawsuit stems from FTX's November 2024 filing against Binance and its founder, targeting a 2021 share purchase agreement that FTX characterizes as fraudulent due to the exchange's alleged insolvency at the transaction time. The substantial clawback amount represents one of the largest recovery efforts in the FTX bankruptcy proceedings.
FTX trustees argue the massive transfer constituted an improper transaction that should be reversed to benefit creditors in the bankruptcy estate. The legal theory suggests that Binance received funds that rightfully belong to FTX customers and creditors who suffered losses when the exchange collapsed in late 2022.
A Binance spokesperson previously characterized the claims as "meritless" and indicated the exchange would vigorously defend against the lawsuit. This represents the second dismissal motion filed by Binance, following a similar court filing submitted to a Delaware judge in May 2024.
The earlier motion accused FTX of attempting to shift blame away from Sam Bankman-Fried by holding Binance accountable for FTX's dramatic collapse and subsequent bankruptcy filing.
Zhao Challenges Legal Foundation of Fraud Claims
Monday's motion accused the FTX trust of "nonsensically blaming" CZ and Binance for Bankman-Fried's "pervasive malfeasance," suggesting the lawsuit represents misdirected blame rather than legitimate legal claims. Zhao's legal team characterized many allegations as "legally unfounded" and "outright incoherent."
Zhao specifically challenged the constructive fraud claims, arguing they fail to meet legal requirements for "qualifying transactions" connected to securities contracts under federal law. This technical legal argument could potentially undermine FTX's entire recovery theory if accepted by the bankruptcy court.
The jurisdictional and substantive challenges reflect broader questions about how US courts can pursue international cryptocurrency figures and whether traditional fraudulent transfer laws apply to complex digital asset transactions between global exchanges.
CZ previously pled guilty to US anti-money laundering violations and served four months in prison, while Bankman-Fried received a 25-year sentence following convictions for fraud and conspiracy charges related to FTX's collapse. The contrasting legal outcomes highlight different levels of culpability courts have assigned to various figures in the FTX scandal.
