The proposed sale of FTX’s non-U.S. business to Binance, announced Tuesday amid concerns over stability at FTX, has drawn concerns of antitrust retaliation in the U.S. and elsewhere.
Regulators across the world have the power to block major mergers if they fear they would limit market choice, and also have strict laws against anti-competitive behavior. Binance is the world’s largest crypto exchange by volume, while FTX is within the top five, according to data site CoinGecko.
Binance Chief Executive Changpeng “CZ” Zhao and FTX boss Sam Bankman-Fried tweeted news of the plans on Tuesday, drawing immediate questions over compliance with antitrust laws.
“Next time, check the compliance of your tweet with antitrust laws before you post,” tweeted Thibault Schrepel, an associate professor at Amsterdam University who specializes in blockchain and antitrust issues, of CZ’s announcement. “At this stage, I wouldn’t be surprised to find this tweet in a forthcoming court document/antitrust litigation.”
US regulators could step in
In the U.S., antitrust laws such as the Sherman Act outlaw direct competitors from acting to protect each other. CZ said that he had stepped in to protect users after FTX, faced with a “significant liquidity crunch” had asked for help. That suggests an illegal agreement, Schrepel says – who believes that U.S. laws would apply since the deal affects the entire company, regardless of whether FTX US is part of the deal or not.
Brandon Kressin, a crypto-focused attorney at boutique antitrust law firm Kressin Law Group, seconded Schrepel's concerns.
"This [deal is] a textbook horizontal merger of the sort that the antitrust laws in the U.S. and internationally are meant to address," Kressin said. "I think that the apparent hope they have that excluding the U.S. exchanges from the deal is going to save their deal from antitrust scrutiny is very short sighted. These are global markets, and the transaction is undoubtedly going to have an effect on the U.S. – and U.S. enforcers have an interest in making sure that the antitrust laws protect U.S. consumers."
Mergers and Acquisitions 101
While the Twitter announcements from Binance and FTX on Tuesday made the deal look all but done, Kressin said it's likely just the start of a months-long legal process that could potentially result in federal regulators attempting to block the acquisition.
"They're likely going to have to file [premerger notifications] with the merger enforcement authorities in a lot of different jurisdictions," Kressin said. "In the U.S., that's with the Department of Justice and the [Federal Trade Commission]. I think it's likely that this would go to the DOJ, and the DOJ would be looking at the deal and deciding whether they want to sue under the U.S. antitrust laws to block a transaction."
Kressin added that Binance's Chinese origins (though the exchange has long pushed back against being labeled as a "Chinese company") could result in an extra layer of scrutiny for the deal.
"There is a concern that runs along with general antitrust concerns about this being a direct, horizontal overlap with the dominant player in teh world market," Kressin said. "The fact that there's at least a possibility or suggestion of Chinese involvement is going to raise the scrutiny."
Kressin also said the swift pace of the potential deal and the method in which shareholders were informed could lead regulators to double down on their inspection of the deal.
"Announcing the deal on Twitter like this with so little notice to other important stakeholders, suggests [Binance and FTX] might be aggressive and potentially reckless here," Kressin said.
"You have to give the antitrust authorities a chance to evaluate the transaction first. You can't just start taking actions that merge the companies and taking actions that you wouldn't otherwise take, if not for the fact that you're being merged," Kressin added. "Them taking actions already based on the assumption that this transaction is going to go through may itself raise what we call 'gun jumping' issues."
The European Union also has anti-trust teeth
Antitrust authorities in jurisdictions such as the European Union must also approve, and can block, mergers and acquisitions. Those between major market players vying for the same customers are likely to be of particular interest. For larger deals, the European Commission can fine companies up to 10 percent of turnover if they “jump the gun” by anticipating its approval.
CZ characterized the deal as a non-binding intention, that would be the subject of due diligence investigations in the coming days.
Spokespeople for FTX, Binance and the European Commission did not immediately respond to a request for comment.
Amitoj Singh contributed reporting.
UPDATE (Nov. 8, 2022, 23:40 UTC): Adds additional detail throughout.
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