A judge has approved a settlement between the Commodity Futures Trading Commission (CFTC) and FTX, the defunct crypto exchange founded by convicted fraudster Sam Bankman-Fried, that involves $12.7 billion in compensation paid by FTX to defrauded customers.
The settlement, filed on Aug. 8 at the U.S. District Court for the Southern District of New York, requires FTX to pay $8.7 billion in restitution and $4 billion in disgorgement, which will be used to compensate victims of what the CFTC described in a statement as a “massive fraudulent scheme” that was orchestrated by Bankman-Fried, his now-bankrupt FTX group of companies, and a group of FTX insiders.
The consent order was approved and signed by John Ray, who was appointed CEO of FTX in the aftermath of its collapse in November 2022, to manage the recovery of assets from the failed company.
Notably, Ray stated in a filing with a bankruptcy court six days after his appointment that in more than 40 years of dealing with insolvencies, he had never encountered such a “complete failure of corporate controls and such a complete absence of trustworthy financial information” as had taken place at FTX.
Bankman-Fried was sentenced in March to serve 25 years in prison for defrauding investors of $8 billion via his failed crypto platform.
“He knew it was wrong,” U.S. District Judge Lewis Kaplan said of Bankman-Fried before handing down the sentence. “He knew it was criminal. He regrets that he made a very bad bet about the likelihood of getting caught. But he is not going to admit a thing, as is his right.”
The judge said he found that in addition to losses by FTX customers of $8 billion, FTX’s equity investors lost $1.7 billion, and lenders to the Alameda Research hedge fund founded by Bankman-Fried lost $1.3 billion.
The consent order entered by the U.S. District Court for the Southern District of New York on Aug. 8 also finds that FTX violated the Commodity Exchange Act and CFTC regulations, noting that FTX and Alameda both made material misrepresentations and omissions to customers.
The court noted that while FTX touted itself as “the safest and easiest way to buy and sell crypto” and claimed that customer assets such as bitcoin were held securely and separately from FTX’s own assets, in fact customer funds were commingled and misappropriated.
“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. “But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there.”
The consent order also imposes further injunctions against FTX, prohibiting the company from holding or trading any digital asset commodities, such as bitcoin and ether, unless it’s for the purpose of winding down any of the entities that owe money in the bankruptcy proceeding under supervision of the bankruptcy court.
The settlement was made as FTX is working through its bankruptcy process by settling legal disputes, selling off assets, reaching agreements with U.S. regulators, and seeking approval from creditors and customers for its final plan to wind down the company.
FTX is currently soliciting votes on its bankruptcy proposal but is facing opposition from some customers who say they’re being shortchanged by the decision to repay them based on cryptocurrency prices from November 2022, which were much lower than they are now.
The company has said that customers will receive 100 percent recovery of their claims against the company, based on the value of their accounts at the time that FTX filed for bankruptcy in November 2022.
From The Epoch Times