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The Delaware Bankruptcy Court has issued a significant ruling in the FTX–Binance litigation. See FTX Recovery Tr. v. Binance Holdings Ltd., No. 24-50222, slip op. (Bankr. D. Del. July 24, 2026).

In an opinion addressing multiple motions to dismiss, Chief Judge Karen B. Owens permitted the FTX Recovery Trust’s core fraudulent-transfer claims, which seek to avoid and recover approximately $1.76 billion transferred in a 2021 share repurchase, to proceed against the Binance entities and Changpeng Zhao (also known as “CZ”). The court dismissed those claims as against former executives Samuel Lim and Dinghua Xiao, and separately dismissed FTX’s tort and unjust-enrichment claims premised on Binance’s and Zhao’s conduct during FTX’s collapse.

Key takeaways:

• Arbitration: The transaction documents’ arbitration clause did not reach the fraudulent-transfer claims. Although trustees are generally bound by a debtor’s prepetition contracts when asserting derivative rights, avoidance claims under Sections 544(b) and 548 of the Bankruptcy Code derive from statutory powers to pursue transfers for the benefit of creditors, rather than from the debtor’s contractual rights. Accordingly, the prepetition arbitration provision did not bind the Recovery Trust with respect to those claims.
• Cross-border transactions: Foreign incorporation was not dispositive. At the pleading stage, the court found a plausibly domestic transfer based on allegations involving a Delaware transferor, U.S. equity, BUSD minted through a New York trust, U.S. negotiations, and U.S.-based platform operations. The broader question of the avoidance provisions’ extraterritorial reach remains open.
• Section 546(e) securities safe harbor: Section 546(e) of the Bankruptcy Code limits avoidance of certain settlement payments and transfers made by, to, or for the benefit of qualifying financial institutions or financial participants in connection with securities contracts. The defense could not be resolved on the record presented because a general investment presentation did not establish the transaction types, nonaffiliate counterparties, statutory value thresholds, or relevant time periods required by Section 101(22A) to show that Alameda qualified as a “financial participant.”
• In pari delicto: The state-law claims arose from Zhao’s November 2022 Tweets announcing Binance’s FTT liquidation and withdrawal from a proposed FTX acquisition, which plaintiffs alleged triggered a fatal customer run. Those claims failed because the misconduct of FTX’s insiders was imputed to the debtors. Without conducting a formal choice-of-law analysis, the court assumed that Delaware law governed Counts VI through IX because both sides relied on Delaware law and the defendants had not identified a material conflict with any potentially applicable alternative law. The court rejected the adverse-interest exception, which applies only when an agent’s fraud is entirely adverse to the corporation and the agent has completely abandoned the corporation’s interests. The court reasoned that the alleged scheme furthered both Bankman-Fried’s interests and FTX’s interests by projecting financial strength. It also held that the sole-actor exception independently defeated the adverse-interest exception because Bankman-Fried allegedly dominated the debtors, making his conduct imputable to them even if adverse. Finally, the Recovery Trust’s status as an innocent successor did not change the analysis because, under Section 541 of the Bankruptcy Code, the Trust took the debtors’ prepetition causes of action subject to defenses that could have been asserted against the debtors, including in pari delicto.

Practical implications: Arbitration provisions and offshore corporate structures should not be assessed in isolation from a counterparty’s bankruptcy avoidance exposure. For digitally settled, cross-border transactions, practitioners should ensure contemporaneous documentation of the locations of decision-makers, transferors, accounts, platforms, intermediaries, and assets, and should preserve transaction-level evidence capable of supporting any future safe-harbor defense.

The ruling also arrives as the Recovery Trust commences a fifth distribution of approximately $900 million to creditors. The surviving lawsuit preserves another potentially significant recovery path, but it establishes neither liability nor an entitlement to recovery.