FTX, the defunct crypto exchange founded by convicted fraudster Sam Bankman-Fried, has reached a $12.7 billion settlement with the Commodity Futures Trading Commission (CFTC) to compensate defrauded customers. The settlement, approved by a judge at the U.S. District Court for the Southern District of New York, requires FTX to pay $8.7 billion in restitution and $4 billion in disgorgement. This massive fraudulent scheme, orchestrated by Bankman-Fried, his bankrupt FTX group of companies, and a group of FTX insiders, has been described by the CFTC as a complete failure of corporate controls and trustworthy financial information.
John Ray, who was appointed CEO of FTX after its collapse in November 2022, stated in a filing with a bankruptcy court that he had never encountered such a level of corporate failure in his 40 years of dealing with insolvencies. Bankman-Fried was sentenced to 25 years in prison for defrauding investors of $8 billion through his failed crypto platform. The judge found that FTX customers lost $8 billion, equity investors lost $1.7 billion, and lenders to the Alameda Research hedge fund lost $1.3 billion.
The consent order entered by the U.S. District Court also found that FTX violated the Commodity Exchange Act and CFTC regulations. FTX and Alameda both made material misrepresentations and omissions to customers. Despite claiming to be the safest and easiest way to buy and sell crypto, FTX commingled and misappropriated customer funds, betraying the trust of its users.
CFTC Chairman Rostin Behnam criticized FTX for its lack of governance, customer protections, and surveillance. He stated that FTX used age-old tactics to create an illusion of safety and security in accessing crypto markets. The court’s consent order imposes additional injunctions on FTX, prohibiting the company from holding or trading any digital asset commodities, unless it’s for the purpose of winding down entities under the supervision of the bankruptcy court.
The settlement comes as FTX is working through its bankruptcy process, settling legal disputes, selling assets, and seeking approval from creditors and customers for its final plan to wind down the company. FTX is currently soliciting votes on its bankruptcy proposal, but some customers are opposing the decision to repay them based on cryptocurrency prices from November 2022, which were much lower than they are now.
Despite the settlement, the FTX case serves as a reminder of the risks associated with cryptocurrency investments. It highlights the importance of thorough due diligence and regulatory oversight in the crypto industry. Customers should exercise caution and choose reputable platforms that prioritize transparency and security.
