The U.S. District Court for the Southern District of New York has delivered a huge blow to FTX, ordering them to pay $12.7bn to compensate the victims of their extensive fraudulent activities.
This decision includes $8.7bn in restitution and $4bn in disgorgement funds aimed at further compensating those impacted by the fraud.
The court found that FTX violated multiple regulations under the Commodity Exchange Act (CEA) and CFTC regulations. This led to a series of injunctions preventing further breaches of the CEA and CFTC rules, alongside trading and registration prohibitions. Furthermore, both FTX and Alameda are required to cooperate fully with the CFTC as its litigation continues.
Despite portraying itself as a secure platform for trading digital assets, including Bitcoin and Ether, FTX was found to have engaged in severe mismanagement of customer assets. The court highlighted FTX’s false claims about the segregation and safety of customer funds, revealing a disturbing reality where these funds were commingled with company assets and misused.
In conjunction with the court’s ruling, the CFTC has reached a settlement agreement approved by the Bankruptcy Court for the District of Delaware. Notably, the CFTC will not seek a civil monetary penalty against FTX and will prioritize the monetary claims of the fraud’s victims over its own in the bankruptcy proceedings.
The payments FTX makes towards its CFTC disgorgement obligations are intended to boost the supplementary remission fund, as outlined in FTX’s proposed reorganization plan, which awaits further court approval.
CFTC Chairman Rostin Behnam commented on the resolution, highlighting the illusory safety that FTX promoted while lacking essential regulatory mechanisms to prevent such a catastrophic collapse. “FTX used age-old tactics to create an illusion that it was a safe and secure place to access digital asset 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,” he stated.
Ian McGinley, Division of Enforcement Director, also noted the unprecedented nature and speed of this recovery effort, marking it as the largest in CFTC history, achieved within just 21 months of FTX’s collapse.
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