The U.S. District Court for the Southern District of New York ordered FTX Trading and Alameda Research to pay $12.7 billion in monetary relief to FTX customers and victims of FTX’s fraud.
The order requires FTX to pay $8.7 billion in restitution and $4 billion in disgorgement, which will be used to further compensate victims for losses suffered as a result of the fraud orchestrated by FTXC and its CEO Samuel Bankman-Fried, according to the Commodity Futures Trading Commission (CRFTC).
The order stated that FTX and Alameda made material misrepresentations and omissions to customers, noting that FTX touted itself as “the safest and easiest way to buy and sell crypto.” It added that customer assets, including digital assets such as Bitcoin and Ether, were held in “custody” by FTX while stating that it segregated customer assets from FTX’s own assets. In fact, customer funds were commingled and misappropriated.
The order also imposes injunctions against further violations of the CEA and CFTC regulations as well as trading and registration prohibitions. It also requires FTX and Alameda to cooperate with the CFTC in its ongoing litigation.
“FTX used age-old tactics to create an illusion that it was a safe and secure place to access crypto markets. But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there,” CFTC Chairman Rostin Behnam said. “Like countless other CFTC crypto resolutions, including major players Binance, BitMEX, and Tether, this resolution with FTX is consistent with the enforcement commitments I have long made as Chairman. But, as I have been saying for years, this is just the tip of the iceberg. In the absence of digital asset legislation to fill regulatory gaps, entities will continue to operate in the shadows without these basic tools of sound regulation, sharpening their deceptive practices and continuing to dupe customers.”
In a related settlement agreement, the CFTC agreed not to seek a civil monetary penalty against FTX and to subordinate its monetary claims to those of victims of the FTX fraud scheme. Payments by FTX towards its CFTC disgorgement obligation will be used to further compensate victims through a supplemental remission fund.
“Not only is this multi-billion-dollar recovery for victims the largest such recovery in CFTC history; we achieved it with remarkable speed. 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. I commend our Chicago-based team for their tireless efforts on behalf of FTX’s victims,” CFTC Division of Enforcement Director Ian McGinley said.