A US court has ordered the bankrupt cryptocurrency exchange FTX to pay $12.7 billion (£9.9 billion) to compensate customers and fraud victims. This decision comes five months after its founder was jailed for his role in the company’s collapse.
The Commodity Futures Trading Commission (CFTC) called it the “largest such recovery” in its history.It is aiming to return funds to those affected by the “massive fraudulent scheme orchestrated by Sam Bankman-Fried, his now-bankrupt FTX group of companies, and a core group of FTX insiders.”
FTX collapse
FTX collapsed in late 2022 amid a crypto price crash. Bankman-Fried was jailed in March for 25 years after being convicted of fraud and conspiracy to launder money late last year. He has also been ordered to forfeit $11 billion in assets.
FTX was once valued at $32 billion. It used customer funds for risky investments through a closely associated hedge fund, Alameda Research. Bankman-Fried also used customer money for his personal exploits, including large political donations, luxury cars, properties in the Bahamas, and endorsements from A-list celebrities.
“Old-fashioned embezzlement”
An enormous budget shortfall was revealed when customers started asking for their cash to be returned. Prosecutors described Bankman-Fried’s operations as “old-fashioned embezzlement” disguised as innovative technology. He was accused of stealing a total of $8 billion from his customers.
CFTC chair 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.”
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The latest compensation order by the US District Court for the Southern District of New York concludes a nearly two-year legal case filed by the CFTC in December 2022.
The judge’s order permanently bans FTX from trading, holding, or receiving funds for the purpose of buying or selling digital assets.
However, Behnam stated that the case highlighted the need for more stringent regulations to govern digital assets and cryptocurrencies.
