The US Commodity Futures Trading Commission (CFTC) has obtained a consent order against beleaguered crypto platform FTX and sister company Alameda Research to pay US$12.7bn in monetary relief to FTX customers and victims of the firms’ fraud.
An order submitted to a US District Court this week requires FTX to pay US$8.7bn in restitution and US$4bn in disgorgement which will be used to further compensate victims for losses suffered as a result of the massive fraudulent scheme orchestrated by founder Sam Bankman-Fried and his now-bankrupt FTX group of companies.
The order finds FTX violated the Commodity Exchange Act (CEA) and CFTC regulations and imposes injunctions against further violations of the CEA and CFTC regulations, as well as trading and registration prohibitions, and requires FTX and Alameda to cooperate with the CFTC in its ongoing litigation.
FTX and Alameda are accused of making material misrepresentations and omissions to customers, representing themselves as “the safest and easiest way to buy and sell crypto,” and claiming that customer assets, including digital assets such as Bitcoin and Ether were held in “custody” by FTX and segregated from FTX’s own assets – when in fact customer funds were commingled and misappropriated.
In a related settlement agreement approved by the Bankruptcy Court for the District of Delaware, 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.
As described by FTX in its proposed reorganisation plan filed in its bankruptcy proceeding, payments by FTX towards its CFTC disgorgement obligation will be used to further compensate victims through a supplemental remission fund. The plan remains subject to approval.
“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,” said CFTC Chairman Rostin Behnam. “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.”
