Judge Lets FTX Trust Pursue Binance for $1.76B

On July 24, U.S. Bankruptcy Judge Karen B. Owens allowed the FTX Recovery Trust to press $1.76 billion in clawback claims tied to a July 2021 share repurchase. The complaint alleges seven agreements executed on July 15, 2021 repurchased Binance’s roughly 20% stake in FTX Trading and an 18.4% stake in West Realm Shires that had been held by Changpeng Zhao, Dinghua Xiao and Samuel Wenjun Lim. The trust says the consideration consisted of BUSD, BNB and FTT tokens worth at least $1.76 billion. Owens kept Counts I through V alive, which assert constructive and actual fraudulent transfers and seek recovery of the transferred property or its value. She allowed those counts to proceed against Binance Holdings Limited; Binance Capital Management Co. Ltd. (now Digital Anchor Holdings Limited); Binance Holdings (IE) Limited; Binance (Services) Holdings Limited; and Changpeng Zhao. The court dismissed the same counts against Xiao and Lim. The judge dismissed Counts VI through IX, which alleged injurious falsehood, fraud, intentional misrepresentation and unjust enrichment tied to statements the plaintiffs say contributed to FTX’s collapse. Owens applied the in pari delicto doctrine and rejected the trust’s attempt to use the sole-actor exception. Her analysis at the pleading stage made limited findings about alleged falsity and causation and did not decide ultimate liability or how those statements affected FTX’s failure. The opinion found that the bankruptcy court has subject-matter jurisdiction and that the trust made an initial showing of personal jurisdiction over the four Binance entities and Zhao. The court said a domestic transfer was plausibly alleged at this stage and left broader extraterritoriality and choice-of-law questions for later record development. Owens declined to compel arbitration and denied a motion to dismiss under Bankruptcy Code section 546(e), finding that the safe-harbor defense was not established on the pleadings. The court’s rulings allow the litigation to continue in bankruptcy court while defendants may press those defenses as the case proceeds. FTX filed for bankruptcy in late 2022 after a liquidity crisis. The FTX Recovery Trust was created to pursue assets and claims for the benefit of creditors, including fraudulent-transfer actions that seek return of transfers or their value under bankruptcy law.