Collapsed cryptocurrency exchange FTX has agreed to pay $12.7 billion to investors who lost money when exchange went bankrupt in November 2022.
The deal approved this week by U.S. District Judge Kevin Castel in the Southern District of New York was negotiated by the crypto exchange and the Commodity Futures Trading Commission, which had pursued fraud charges against FTX after its meltdown. The consent order of permanent injunction requires FTX to pay $8.7 billion in restitution and $4 billion in other remedies, which will be used to compensate victims of what the CFTC called “massive fraudulent scheme orchestrated” by Samuel Bankman-Fried, the exchange’s founder.
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In November 2023, Bankman-Fried was found guilty of fraud, conspiracy and money laundering after a month-long trial in New York. He was sentenced to 25 years in prison and ordered to pay $11 million. Others in Bankman-Fried’s circle pleaded guilty to fraud after the collapse of FTX and its sister trading company Alameda Research.
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“FTX used age-old tactics to create an illusion that it was a safe and secure place to access crypto markets,” CFTC Chairman Rostin Behnam said in a statement Thursday. “But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there.”
FTX is now run by John J. Ray III, an attorney who has specialized in recovering funds from bankrupt companies, including the collapsed energy trading firm Enron.
Castel on Wednesday also found that FTX violated the Commodity Exchange Act, finding that the exchange misled investors, representing itself as a safe place to buy and sell cryptocurrency, a notoriously volatile and speculative asset, while also co-mingling assets between the exchange and the hedge fund, Alameda.
In a related settlement with the Bankruptcy Court for the District of Delaware, the CFTC agreed to not seek civil penalties against FTX.
