Binance and Changpeng Zhao Subpoena O'Leary and Lewis in $1.76 Billion FTX Lawsuit

Legal Developments Surrounding Binance and FTX

In a significant legal development, Binance, alongside its former CEO Changpeng Zhao, has issued subpoenas to renowned figures Kevin O'Leary, a prominent investor and reality television star, and Michael Lewis, an acclaimed author, as part of a $1.76 billion clawback lawsuit related to FTX's bankruptcy. The news, reported by Bloomberg Law on November 5, follows a notice submitted to the U.S. Bankruptcy Court in Delaware on November 4. This legal action aims to reclaim funds paid out before the cryptocurrency exchange's collapse in late 2022.

Details of the Lawsuit

The lawsuits, initiated by the FTX Recovery Trust and FTX Digital Markets Ltd., extend beyond O'Leary and Lewis to include requests for information from others, such as Steven Ehrlich, formerly of Forbes Digital Assets, and the accounting firm BDO USA. These individuals and entities are being asked to provide various records as part of the ongoing quest to retrieve lost funds for creditors.

In a twist of irony, O'Leary had been a significant backer of FTX, promoting the platform while also being compensated for his endorsements, reportedly to the tune of $15 million. Prior to FTX's demise, he revealed investments totaling around $9.7 million in cryptocurrency, alongside more than $1 million in FTX equity, all of which essentially became valueless after the company's bankruptcy.

Michael Lewis and FTX's Downfall

Lewis, best known for his books such as The Big Short, had closely followed Sam Bankman-Fried, the co-founder of FTX, as he prepared his latest work, Going Infinite: The Rise and Fall of a New Tycoon. The book, released in October 2023, provides a detailed account of Bankman-Fried’s rise in the cryptocurrency industry, offering insights from firsthand conversations before the exchange's spectacular fall.

Contentious Share Buyback Agreement

Central to the lawsuit is a contentious share buyback agreement made in July 2021 concerning substantial stakes in FTX's international operations and its U.S. parent company. The complaint alleges that Alameda Research, Bankman-Fried's trading firm, financed this transaction while FTX was already experiencing insolvency. The payment involved FTX’s own FTT token, Binance’s BNB token, and BUSD, a stablecoin pegged to the U.S. dollar. The plaintiffs argue that this transaction constitutes a fraudulent transfer, prompting their pursuit of $1.76 billion in recovery funds.

Current Status of the Case

Binance and Zhao have pushed back against these claims, seeking to have the case dismissed. However, the recent ruling by Chief U.S. Bankruptcy Judge Karen B. Owens indicates that while some charges against former Binance executives were dismissed, the recovery claims related to Zhao and Binance remain active.

Implications for Creditors

In a related update, FTX Trading Ltd. and the FTX Recovery Trust are set to commence repayment to creditors, with approximately $900 million expected to be disbursed starting July 31, 2026, although various legal battles continue to unfold in the backdrop of this situation.

This sweeping legal confrontation underscores the turmoil within the cryptocurrency space and the ongoing repercussions of FTX's dramatic fall from grace, which has affected many stakeholders, from investors to regulatory bodies.