The US Commodity Futures Trading Commission (CFTC) has ordered cryptocurrency exchange FTX to pay $12.7bn in relief to its former users.
FTX, constituting FTX Trading Ltd and Alameda Research Ltd, will have to pay $8.7bn in restitution and $4bn in disgorgement to former users, who are considered victims of a fraudulent scheme perpetrated by its founder, Sam Bankman-Fried, alongside people described by the CFTC as a ‘core group of FTX insiders’.
The November 2022 collapse of FTX was caused by a mass withdrawal of funds by its customers, revealing a $8bn gap in its accounts, ultimately resulting in its bankruptcy. Sam Bankman-Fried, known colloquially as SBF, subsequently faced legal charges.
The following November, SBF was found guilty of fraud in a Manhattan federal court and sentenced to 25 years in federal prison. A long-running process to reimburse FTX crypto investors then began, which seems to be wrapping up with the CFTC’s latest announcement, backed by the U.S. District Court for the Southern District of New York.
CFTC Chairman, Rostin Behnam, said: “FTX used age-old tactics to create an illusion that it was a safe and secure place to access crypto markets. But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there.
“Like countless other CFTC crypto resolutions, including major players Binance, BitMEX, and Tether, this resolution with FTX is consistent with the enforcement commitments I have long made as Chairman.
“But, as I have been saying for years, this is just the tip of the iceberg. In the absence of digital asset legislation to fill regulatory gaps, entities will continue to operate in the shadows without these basic tools of sound regulation, sharpening their deceptive practices and continuing to dupe customers.”
FTX has also been subject to another legal ruling this week, this time in the Bankruptcy Court for the District of Delaware. In a settlement agreement, the CFTC has agreed not to seek a civil monetary penalty against FTX, instead giving priority to the claims made by FTX fraud victims.
Any payments to the CFTC included in its reorganisation plan filed during the 2022 bankruptcy will instead be used to further compensate victims through a supplemental remission fund. The CFTC’s plan is still subject to approval in the bankruptcy proceeding, however.
Division of Enforcement Director, Ian McGinley, added: “Not only is this multi-billion dollar recovery for victims the largest such recovery in CFTC history, we achieved it with remarkable speed.
“FTX’s massive fraud collapsed 21 months ago and in that time the CFTC investigated, filed a complaint, and achieved what many thought was impossible at the time of the collapse – a resolution to compensate victims for the losses they suffered. I commend our Chicago-based team for their tireless efforts on behalf of FTX’s victims.”
The bankruptcy, collapse and criminal trial around FTX sent shockwaves through the global crypto markets, which were hit hard. It took global crypto much of 2023 to recover, with consumer confidence in the sector falling due to the widely-publicised collapse and trial.
Just under two years later, the sector has rebounded strongly. Regulatory developments have assisted greatly in this, particularly the US Securities and Exchange Commission (SEC) approval of Bitcoin and Ethereum ETFs this year.