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Regulatory Series on Cryptocurrencies: ‘FTX’ Slammed By $150Mln Lawsuit For Binance Bitcoin Futures Manipulation

Binance, one of the leading cryptocurrency exchanges in the world, which was unfortunately in the news of hacking of bitcoins and fraudulent activities.

FTX, a crypto derivatives platform, is accused to be using accounts to manipulate Binance’s recently-launched Bitcoin futures in mid-September.

The plaintiff, named ‘Bitcoin Manipulation Abatement LLC’ has filed a lawsuit against crypto-derivatives exchanges ‘FTX’ incubated by a trading firm Alameda Research LLC and demanding a $150 million in exemplary and punitive damages.

The lawsuit alleges that the CEO and multiple employees twice unsuccessfully tried to manipulate Bitcoin prices on Binance cryptocurrency exchange. 

As per the complaint, FTX used accounts to manipulate Binance’s recently-launched Bitcoin futures in mid-September: “The defendants, and each of them, were caught red-handed when, at about 21:00 EDT on September 15, 2019, and acting in furtherance of the manipulative and deceptive scheme as alleged hereinabove, Defendants, and each of them, made two illicit unsuccessful attempts to manipulate prices of Bitcoin futures listed on Binance cryptocurrency futures exchange. One such attempt was perpetrated by dumping futures contracts for about 255 bitcoins, valued at approximately $2,626,500, on to the newly opened Binance’s SAFU futures market, at market prices, in two minute time interval, with the specific purpose to cause a calculated artificial price move that would trigger cascading execution of stop loss orders and liquidations of bitcoin futures long positions on Binance and propagate to other exchanges (“liquidation cascade”). In furtherance of the alleged manipulative and deceptive scheme, Defendants, and each of them, deliberately chose the newly opened and thinly traded derivatives exchange and the time of the lowest global bitcoin and bitcoin futures trading liquidity (21:00 EDT on Sunday) to maximize the impact of their illicit and unlawful manipulation attempt on the price of bitcoin futures. Both times, Defendants, and each of them, were caught by Binance’s market surveillance functionality and their manipulation attempts were thwarted.”

Pertaining to the case, Mr. Changpeng Zhao, the CEO of Binance, used a twitter handle earlier to address about the market making. He further went onto tweet by saying “only scanned through the parts that explicitly had the word Binance. Honestly, all seems very far-fetched. We have resolved the issues long ago.”

During the evolution phase of cryptocurrencies, many veteran investors and policymakers have warned that the derivatives marketplace may have Ponzi schemes and investors are advised to be well-informed for the prudence of their investments.

By Niranjan Patil
  • Market Data
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