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A witness claims that Binance CEO Changpeng Zhao was bought out by Sam Bankman-Fried using $122 billion in client funds THE BHARAT EXPRESS NEWS: Will CZ repay it?


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When the government called Peter Easton, an accounting professor at the University of Notre Dame, to the witness stand Wednesday, his testimony wasn’t surprising: Sam Bankman-Fried, the former CEO of the now-bankrupt crypto exchange FTX, took money from customers spring.

To support his conclusions, the accounting professor pointed to examples of cases where Bankman-Fried, who is now on trial for fraud, has deployed clients’ cash and crypto: venture investments, political donations and a buyback of shares in FTX worth 2.2 billion dollars from Changpeng Zhao, CEO. from rival cryptocurrency exchange Binance. And $1.2 billion of that $2.2 billion – denominated in the cryptocurrencies BUSD, BNB and FTT – came specifically from customers, Easton said.

Binance representatives did not immediately respond to a request for comment from Fortune about Easton’s testimony and whether Zhao will be asked to return the money. A spokesperson for the FTX estate declined to comment.

Binance’s CEO previously addressed concerns about Bankman-Fried receiving that money. ‘I think we’ll leave that to the lawyers. I think our legal team can handle this just fine,” he said in response to a question about whether he was willing to return that money to the FTX estate.

But now that a government witness has explicitly said that more than half of the more than $2 billion Zhao got from Bankman-Fried came directly from customers, how have Binance’s legal obligations changed at all?

‘Implications later’

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Mark Pfeiffer, bankruptcy attorney at Buchanan Ingersoll & Rooney, said Fortune that both U.S. bankruptcy law and state civil law provide the FTX estate with multiple avenues to recover funds from Binance.

Federal law allows FTX’s estate to recover money previously sent in an attempt to defraud its creditors or if a deal occurred while FTX was insolvent and attorneys can prove it was a bad business decision. The deal must take place within two years of an entity declaring bankruptcy, which is the case with Bankman-Fried’s share buyback. “If you buy your stock when you’re insolvent, that’s always going to be a problem,” says Edward Morrison, a professor at Columbia Law School who specializes in bankruptcy law.

And civil law in most US states is even simpler. “If I borrow your car and sell it to a third party, you, as the owner of that car, can sue the third party to get it back,” Pfeiffer said.

Morrison, the Columbia professor, added that even if the FTX estate could convince a judge to force Binance to return at least $1.2 billion, actually getting that money back is another matter. (He also added that bankruptcy laws governing financial markets could become complicated, potentially leaving Binance with obscure legal defenses.)

Assets for the world’s largest crypto exchange are not primarily located in the US, and where most of Binance’s capital is located is an open question. “It is true that the bankruptcy court may have limited power to enforce the judgment abroad,” Morrison said. “On the other hand, Binance will likely need access to US markets and US courts in the future. And bad behavior now can have consequences later.”

This story originally appeared on Fortune.com

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