A US court has mandated the bankrupt cryptocurrency exchange FTX to pay $12.7 billion (£9.9 billion) in compensation to customers and fraud victims, marking the largest recovery in the history of the Commodity Futures Trading Commission (CFTC). This order comes five months after FTX’s founder, Sam Bankman-Fried, was jailed for his role in the company’s downfall.
Massive Fraud and Bankman-Fried’s Role
FTX, once valued at $32 billion, collapsed in late 2022 amid a broader cryptocurrency market crash. Bankman-Fried, who was convicted of fraud and conspiracy to launder money, was sentenced to 25 years in prison in March. The court has also ordered him to forfeit $11 billion in assets.
Bankman-Fried and his closely associated hedge fund, Alameda Research, were accused of using customer funds for risky investments and personal exploits, including luxury purchases and large political donations. The fraudulent scheme ultimately led to an $8 billion shortfall when customers attempted to withdraw their funds, revealing the extent of the embezzlement.
CFTC’s Response and Regulatory Gaps
Rostin Behnam, the CFTC chair, stated that FTX had used traditional tactics to create the illusion of a secure and trustworthy platform for crypto trading. However, the company lacked basic regulatory safeguards such as governance, customer protection, and surveillance, which could have identified misconduct and prevented the collapse.
The court’s order, issued by the US District Court for the Southern District of New York, concludes a nearly two-year legal battle initiated by the CFTC in December 2022. The ruling permanently bans FTX from trading or holding funds for digital asset transactions.
Calls for Stricter Regulation
Behnam emphasized the need for more stringent regulations in the digital assets sector, warning that without proper legislative measures, entities like FTX will continue to operate in the shadows, deceiving customers and evading regulatory scrutiny.
This case serves as a stark reminder of the risks inherent in the unregulated world of digital assets and the urgent need for comprehensive legislation to protect investors and maintain market integrity.
