FTX vexed by futures manipulation lawsuit for ‘sparking cascade of trades’

FTX vexed by futures manipulation lawsuit for ‘sparking cascade of trades’

FTX, a cryptocurrency derivatives exchange owned by Alameda Research, is facing a $150 million lawsuit over deceptive market manipulation tactics on the Binance exchange, while also being accused of selling unlicensed securities in the U.S. The plaintiff, Bitcoin Manipulation Abatement LLC, is already making a name for itself, due to this litigation, which demands $150 million for “exemplary and punitive damages”.

Samuel McCulloch, a podcast host for “End of the Chain”, uploaded lawsuit documents on social media, according to Cointelegraph. He claims the document accuses FTX of mounting an attack on the Binance exchange, after it launched its futures product in mid-September. McCulloch notes:

The crux of the plaintiff’s argument is that FTX used its position to manipulate BTC prices using momentum ignition algos, with the goal of creating liquidation cascades.

This type of tactic is designed to force liquidations of futures contracts by creating a price point that puts the holders of the contracts in jeopardy, enough so that the contract will automatically be closed to prevent any further financial damage. Although plausible in a general sense, the price points created by the FTX “cascade of trades” would not have worked in this manner at Binance.

For liquidation purposes, Binance had chosen to use a Bitcoin price index, calculated by combining a basket of prices from other exchanges, a way of avoiding a singular event on its platform unduly triggering adverse selling. In other words, even if FTX had been successful at what it was allegedly doing, it would not have had an impact. In actuality, the contracts on the Binance platform were not liquidated. The plaintiff still claims that Alameda and FTX profited to the tune of $150 million, the reason for its claim.

Alameda Research quickly defended its subsidiary and itself:

Although we have not been served, a complaint written by a patent lawyer against Alameda has been circulating on the Internet. The nuisance suit is riddled with inaccuracies, including mistaking the entire business model of Alameda.

Alameda added:

The lawsuit was a form of trolling, with no substantial evidence, beyond repeating well-known conspiracies about price manipulation… It is an unfortunate reality that it is easy to file bulls*** lawsuits and annoying to fight them, and some assholes will use this as an excuse to extort anyone they see as high profile.

According to Crowdfundinsider, crypto lawyer Stephen Palley considered the case as “interesting” and said that he expects to see “a plethora of crypto market manipulation cases” in the coming years. He also said that these types of cases are difficult to prove and panned the plaintiff as being a makeshift vehicle constructed solely for the purposes of this lawsuit attempt.

His very words are not sympathetic:

The narrative would be nicer if the plaintiff were something other than a purpose-built litigation vehicle (though its manageable and not a novel contrivance)… (and) should also note that just because someone sues someone for a kajillion dollars it doesn’t mean that it’ll survive a motion to dismiss.

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