New York Judge Approves $12.7 Billion Settlement for FTX Crypto Exchange in CFTC Case
A New York judge has given final approval for defunct cryptocurrency exchange FTX and sister trading firm Alameda Research to return $12.7 billion to the exchange’s creditors. The payment is part of a settlement that involves the United States Commodity Futures Trading Commission (CFTC).
The approval is a major step in resolving the fallout from FTX’s November 2022 collapse. FTX crashed after several issues, including a loss of customer trust that led to a bank run, inadequate risk management, and a liquidity crisis that affected Alameda Research. However, before its collapse, FTX was the world’s second-largest cryptocurrency exchange at its peak, handling several billion dollars worth of cryptocurrencies and investments on behalf of millions of users. Similar to investing in upcoming Binance listings with a potential for a spike in value, people could invest in FTX-listed assets to earn from price action in the crypto industry.
According to a filing at the United States District Court for the Southern District of New York, Judge Peter Castel ordered FTX and Alameda to pay out funds. Both parties had earlier agreed to the settlement on July 12 but had to hold out for the final court approval. The filing notes that FTX and Alameda research should return $8.7 billion as a restitution obligation to users who lost money. The order also includes a disgorgement obligation for another $4 billion. The disgorgement obligation is a requirement for companies to submit any profits gained through improper means.
In addition to the payments, the order permanently bans FTX and Alameda from conducting any transactions involving “digital asset commodities” and selling crypto on behalf of a third party. They are also banned from “cheating or defrauding” customers.
In December 2022, the CFTC sued FTX, former CEO Sam Bankman-Fried (SBF), and Alameda Research. The Commission accused the defendants of fraud and deliberate misrepresentations. According to a press release from the Department of Justice, SBF was sentenced to 25 years in prison in March. The publication also specifies three years of supervised release and an order to forfeit $11 billion “for his orchestration of multiple fraudulent schemes.”
US Attorney Damian Williams for the Southern District of New York described the scheme as “one of the largest financial frauds in history.” According to Williams:
“The scale of his crimes is measured not just by the amount of money that was stolen, but by the extraordinary harm caused to victims, who in some cases had their life savings wiped out overnight.”
New York is known in the crypto space for its enforcement action, especially through the Office of the Attorney General. The enforcement action reflects the state’s stringent crypto stance, which could extend to several other crypto business providers, including crypto gambling businesses.
In June, Attorney General Letitia James recovered about $50 million from crypto exchange Gemini Trust Company, LLC, after the platform allegedly misrepresented the risks associated with one of its investment programs, Gemini Earn.
According to the settlement, Gemini must return the funds to over 230,000 investors, including at least 29,000 New Yorkers. Attorney General James said Gemini “lied and locked investors out of their accounts” after deliberately withholding information that would have given investors a more transparent picture of potential risks. The recovery sees investors receive funds they could not withdraw after the Gemini Earn program collapsed.