Changpeng “CZ” Zhao, the former CEO of Binance, is currently embroiled in a legal standoff regarding a significant $1.76 billion clawback lawsuit initiated by the FTX trust, which is facing bankruptcy. This bold move signals a strategic response to the deepening legal scrutiny surrounding crypto exchanges.

Questioning Jurisdiction in Delaware

A recent article highlights Zhao’s challenge to the jurisdiction of the Delaware court, asserting his residency in the UAE and claiming a lack of connection to Delaware. His defense hinges on the assertion that the allegations fail to establish a substantial presence there.

Zhao’s legal team argues for the dismissal of the case, citing that the court lacks the authority to adjudicate on this matter. Should the ruling favor Zhao, the FTX trust may be forced to explore alternative legal venues.

Navigating jurisdictional regulations is critical when substantial sums, such as $1.76 billion, are involved. The lawsuit alleges that the funds originated from a share purchase agreement during 2021.

Binance acquired these shares just as FTX faced impending insolvency. Zhao’s representation dismisses these claims as unfounded, asserting that the transactions predominantly occurred abroad, thus falling outside US jurisdiction.

Disputing Allegations of Fraud

The motion filed in late September services to contest the application of US fraud statutes beyond national borders. Zhao’s argument states that the applicable regulations do not extend their reach to individuals residing outside the United States.

Reports indicate that Zhao’s defense is directly questioning accusations of “constructive fraud,” which are rooted in specific federal definitions associated with securities agreements, according to his filings.

FTX initially leveled charges against Binance and Zhao in November 2024. At the outset, Binance dismissed the allegations as “meritless,” asserting that the bankrupt entity was merely attempting to deflect responsibility for its own failures onto Zhao.

In response to earlier filings, Zhao’s legal team emphasized that the characteristics defining “malfeasance” attributed to Bankman-Fried and his actions should not implicate Binance.

Weighing the Previous Legal Arguments

An earlier motion from May echoed many arguments highlighted in the latest document. It illuminated the effort by FTX’s legal representatives to link financial communications and transactions conducted through US banking institutions to justify jurisdiction.

Binance counters that such connections are insufficient to establish operational presence in Delaware. They argue that mere financial transactions do not equate to a legitimate business establishment in the region.

Sam Bankman-Fried is currently serving a 25-year prison sentence for his involvement in fraudulent activities. Regardless of the upcoming court decisions, the ongoing conflict over jurisdiction and venue will likely shape the lengthy legal discourse surrounding FTX’s financial downfall.

Zhao himself previously encountered legal issues, having spent four months incarcerated after admitting guilt to various anti-money laundering violations.

The Anticipated Counterarguments

In defense, FTX’s legal representatives are expected to advocate vigorously, emphasizing the substantial financial movement through US accounts. They will argue that these activities establish sufficient grounds for jurisdiction based on longstanding legal principles.

The ongoing deliberation regarding this procedural issue may unfold over several months, setting the stage for further developments in this high-stakes legal battle.

Featured image from Horacio Villalobos Corbis/Getty Images, chart from TradingView