A federal judge in New York ordered bankrupt crypto exchange FTX and its sister company Alameda Research to pay $12.7 billion in monetary relief to customers and victims of FTX fraud, the Commodity Futures Trading Commission said Thursday.
Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York ruled that FTX made material misrepresentations and omissions to customers when it commingled and misappropriated funds after claiming to be “the safest and easiest way to buy and sell crypto,” and that the firms violated the Commodity Exchange Act and CFTC regulations.
Castel approved a $12.7 billion settlement between FTX and the CFTC.
FTX “create[d] an illusion that it was a safe and secure place to access crypto markets,” CFTC Chair Rostin Behnam said in a prepared statement. “But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there.”
Behnam’s commentary reflected revelations that came in the aftermath of FTX’s November 2022 bankruptcy, which showed billions of dollars in customer losses.
FTX’s CEO since bankruptcy, John J. Ray III, said shortly after he took the reins that he’d never seen such a “complete failure of corporate controls” as at the FTX he inherited. And in terms of customer protections, former technology chief Gary Wang said during the fraud trial of former CEO Sam Bankman-Fried that an insurance fund FTX claimed to have for customers was largely fabricated.
FTX said in May that most of its customers would receive more than 100% recovery on their claims, based on the value of their crypto in November 2022. The CFTC agreement resolved a hurdle that repayment may have faced: It will not seek a civil monetary penalty against the failed crypto exchange to instead get the money in the hands of creditors and former customers.
The court order resolves a lawsuit filed by the CFTC one month after FTX’s collapse, and also bans FTX and Alameda from ever trading digital assets again.
“Not only is this multi-billion dollar recovery for victims the largest such recovery in CFTC history, we achieved it with remarkable speed,” Ian McGinley, the agency’s director of enforcement, said in a prepared statement. “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.”
