In a major legal development, a court has mandated that the bankrupt cryptocurrency exchange FTX must pay $12.7 billion to its customers. This ruling, announced by the Commodity Futures Trading Commission (CFTC) on Thursday, aims to provide monetary relief to those affected by FTX’s sudden collapse.
The settlement specifically requires FTX to pay $8.7 billion in restitution and an additional $4 billion in disgorgement. Restitution will go directly to victims who had their funds trapped when FTX went under in 2022. Disgorgement involves returning ill-gotten gains, in this case, the funds FTX misused for its own investments instead of safeguarding customer deposits.
CFTC Chairman Rostin Behnam highlighted how FTX lured customers with false assurances of being a secure platform for accessing crypto markets. However, the reality was starkly different, as the company used customer deposits for risky investments, ultimately leading to its downfall.
Details of the Settlement and Background of FTX’s Downfall
In a related legal agreement, approved by the Bankruptcy Court for the District of Delaware, the CFTC agreed not to pursue a civil monetary penalty against FTX, according to reports from the Wall Street Journal. This settlement comes after months of legal battles following the arrest and conviction of FTX’s founder, Sam Bankman-Fried.
Bankman-Fried, once hailed as the “King of Crypto,” was sentenced in March to 25 years in prison for misappropriating $8 billion in customer funds. He was a prominent figure in the crypto world, known not only for his wealth but also for his young age—he was just 32—and his public commitment to using his fortune for charitable causes.
FTX was, at one point, a powerhouse in the cryptocurrency market, valued at $32 billion and boasting a user base of over a million. Bankman-Fried’s company was seen as a beacon in the rapidly growing crypto industry, making headlines with its partnerships with celebrities and major sponsorship deals.
However, the empire quickly unraveled in November 2022, after a report by CoinDesk exposed that the majority of FTX’s assets were tied up in Alameda Research, a trading firm also run by Bankman-Fried. This revelation caused panic among investors and customers, leading to mass withdrawals and the discovery of an $8 billion deficit in FTX’s accounts. The company’s downfall was swift, and it filed for bankruptcy shortly thereafter.
As FTX navigates its bankruptcy proceedings, the company is currently seeking approval for its bankruptcy proposal, with votes due by August 16.