FTX and Alameda to Pay $12.7B for Fraud, Ending the Lawsuit from CFTC

• Crypto exchange FTX and Alameda Research will pay $12.7B to the Commodity Futures Trading Commission (CFTC).
• The payment includes $8.7B in restitution and $4B in disgorgement.
• In March, FTX founder Sam Bankman-Fried was sentenced to 25 years in prison for fraud.

A US Judge ordered crypto exchange FTX and its sister concern Alameda to pay $12.7B to its creditors and the CFTC after one of the largest frauds in crypto history. This judgment ends a two-year-long lawsuit filed by the CFTC.

A Harsh Yet Fair Verdict

On Wednesday, a New York judge, Peter Castel, ruled that FTX and its subsidiary Alameda must pay $12.7B to users who lost their funds in the exchange's collapse.

Out of the $12.7B, FTX will pay $8.7B in restitution (return of wrongfully obtained assets) and $4B in disgorgement (return of profits from illegal activities).

While the order includes a ban on trading digital assets and providing related services for both companies, it doesn't involve civil penalties.

An FTX representative said its users will receive 100% recovery on their claims based on the value of their accounts at the time the exchange filed for bankruptcy.

To prevent potential delays, the CFTC agreed not to collect the disgorgement penalty from FTX until it repays all of its customers.

Earlier this year, US District Judge Lewis Kaplan sentenced FTX founder Sam Bankman-Fried to 25 years in prison for fraud and conspiracy.

The judge noted the defendant had been truthful in his testimony. Initially, the prosecution demanded at least 40 years in prison.

The Story Behind the Largest Crypto FraudOnce the second-largest crypto exchange, FTX collapsed in 2022 when its CEO, Sam Bankman-Fried, fled to the Bahamas with over $9B in user funds.

In November 2022, journalists revealed that the majority of Alameda Research assets consisted of $FTT, the native token of FTX exchange, rather than fiat currency or stablecoins. Moreover, Sam Bankman-Fried had a 90% ownership in Alameda.

Days later, FTX users started to withdraw their funds en masse, and the platform announced a liquidity crisis. Then, FTX reported a hackwith a suspected $477M loss, which caused the company to file for bankruptcy.

FTX collapse triggered a downturn in the crypto market and later became known as the largest fraud in crypto history.

Closing Remarks

The $12.7B judgment marks the end of the FTX and Alameda saga and a major victory for its victims.

While the case had a downgrading effect on the crypto market for years, it also emphasized the importance of regulations and consumer protections, ultimately leading to a safer trading environment.

References

• FTX, Alameda Research Must Pay Customers $12.7 Billion In Fraud Suit (Forbes)
• CFTC v FTX Order (CourtListener)

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