Former investors and customers of the cryptocurrency exchange FTX are seeking financial restitution

Cryptocurrency FTX Lawsuit

Former investors and customers of the cryptocurrency exchange FTX are seeking financial restitution after experiencing financial losses as a result of FTX collapsing. In these lawsuits, plaintiffs are alleging that FTX and its executives mismanaged client funds, which is ultimately what led to FTX filing for bankruptcy. The goal of these FTX lawsuits is to hold the executives accountable and to recover some of the losses investors and customers experienced. Federal investigations into FTX are still ongoing, but several criminal indictments have already been filed against senior executives at FTX.

Below, we’ll provide you with all the facts you need related to the collapse of FTX and the class action lawsuits that have been filed as a result.

FTX Exchange Lawsuit Updates

• FTX cryptocurrency exchange declares bankruptcy with an estimated $8 billion in losses (7/18/2023)

Is there an FTX lawsuit?

Yes, former customers have filed a class-action lawsuit against FTX. The lawsuit was filed on Dec. 27 in the United States Bankruptcy Court for the District of Delaware. The lawsuit was filed by four individuals who are claiming to represent the whole class of former FTX customers, which could be up to 1 million individuals. The goal of the lawsuit is to obtain priority access to frozen funds of the company, allowing the customers to receive restitution before investors.

According to the plaintiffs, the FTX User Agreement does not permit the platform to use customer funds for its own purposes. This includes borrowing or using those funds for operating expenses. The lawsuit states that any funds frozen by FTX that are traceable as customer property cannot be used to pay claims or creditors until the customers receive repayment.

As the lawsuit states “Customer class members should not have to stand in line along with secured or general unsecured creditors in these bankruptcy proceedings just to share in the diminished estate assets of the FTX Group and Alameda.”

Cryptocurrency FTX linked to financial loss

FTX Exchange was founded in 2018 by Samuel Bankman-Fried, a Jane Street Capital international ETF trader and graduate of Massachusetts Institute of Technology (MIT). FTX offered several trading products, including options, derivatives, levered tokens, and volatility products. Spot markets were also available in FTX, allowing for more than 300 cryptocurrency trading pairs. A spot market is where you can trade currencies, commodities, and securities for an immediate exchange of cash.

At the beginning, the range of products available through FTX and the easy-to-use website and app drew in investors of all skill levels. On FTX, you could deposit nine different fiat currencies, including the U.S. dollar, British pound and Swiss franc. Users could deposit and withdraw funds via a wire transfer, allowing them to trade currencies quickly and easily. FTX also offered options contracts on Bitcoin and Etherium, cryptocurrency swaps, and Bitcoin mini futures.

By July 2021, FTX Exchange was the world’s third-largest cryptocurrency exchange. It also reached a valuation of $32 billion. However, in November 2022, FTX filed for Chapter 11 bankruptcy protection. It was at this point, on Nov. 11, that Bankman-Fried also resigned from the company. According to the bankruptcy filing, FTX was unable to pay its $8 billion in liabilities to its 1 million creditors.

After Bankman-Fried’s resignation and the bankruptcy filing, a new court-appointment chief executive was installed at FTX. This new chief executive, John J. Ray III, said that the collapse of FTX was due to “a complete failure of corporate control.” He also said, in a statement to the U.S. House of Representatives, that FTX appeared to be a case of “old-fashioned embezzlement.”

Later, on Dec. 13, 2022, the U.S. Attorney for the South District of New York announced an eight-point fraud indictment against Bankman-Fried. This indictment alleges that Bankman-Fried defrauded both investors and customers of FTX, calling it one of “the biggest frauds in financial history.” The eight counts included money laundering and securities fraud. On January 3, 2023, Bankman-Fried pleaded not guilty to all charges.

Beyond this initial investigation, more investigations into FTX are ongoing. Federal regulators are looking at whether FTX used customer funds to support Alameda Research, which was a trading firm almost entirely owned by Bankman-Fried.

With the collapse of FTX, the volatile cryptocurrency market lost billions of value. Over a 24-hour period, two of the most popular cryptocurrencies, Bitcoin and Ethereum, plummeted in value. Bitcoin decreased in value by around 10%, while Ethereum dropped about 17%. In total, the cryptocurrency market dropped 10.6%, falling down to $914 billion, having previously been over $1 trillion.

As a result, many investors and customers lost significant amounts of money. According to John J. Ray III, it’s unlikely that investors and creditors will be able to get all of their money back. This doesn’t include customers, who may have a harder time restoring their losses.

FTX financial loss reports

After thorough investigations, FTX and Bankman-Fried have been charged with various crimes. Below, we’ll detail two reports from the SEC (Securities Exchange Commission) and the CFTC (Commodity Futures Trading Commission), which outline the charges being brought against Bankman-Fried and the losses suffered by the victims.

SEC charges Samuel Bankman-Fried with defrauding investors in crypto asset trading platform FTX

On Dec. 12, 2022, the SEC charged Bankman-Fried with “orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX), the crypto trading platform of which he was the CEO and co-founder.” The complaint goes on to say that, since at least May 2019, FTX raised more than $1.8 billion from equity investors, with about $1.1 billion coming from U.S-based investors. During his representations to investors, Bankman-Fried said that FTX was a safe and responsible crypto asset trading platform. However, according to the complaint, the reality was that Bankman-Fried was conducting yearslong fraud to conceal essential information from FTX’s investors.

Some of this information included the fact that FTX was diverting customers’ funds to Bankman-Fried’s privately-held crypto hedge fund, called Alameda Research LLC. In addition, Alameda Research was receiving special treatment, such as a virtually unlimited line of credit and protections from certain risk mitigation measures. The complaint alleges that FTX’s exposure to Alameda created undisclosed risk, as Alameda held a significant amount of overvalued and illiquid assets. It also alleges that Bankman-Fried used customers’ funds to make undisclosed venture investments, political donations, and real estate purchases.

According to SEC Chair Gary Gensler, “We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.” The Director of SEC’s Division of Enforcement, Gurbir S. Grewal, went on to say that “FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”

CFTC charges FTX co-owner with fraud by misappropriation

On Dec. 13, 2022, the CFTC announced the filing of a complaint against Samuel Bankman-Fried, FTX, and Alameda Research. This complaint charged all three defendants with fraud and material misrepresentations concerning the sale of digital commodities. According to the complaint, the actions of the defendants caused the loss of more than $8 billion for FTX customers.

The CTFC’s Acting Director of Enforcement, Gretchen Lowe, stated “As defendants touted and marketed FTX.com as a model digital commodity asset platform, defendants were committing fraud to the detriment of U.S. investors and to the credibility of the digital asset markets,” adding “We will work tirelessly to use the full scope of our enforcement authority to hold such fraudsters accountable.”

On Feb. 28, the CFTC filed fraud additional charges against Nishad Singh, a senior executive within FTX. These charges include two complaints: one for misappropriation and another for aiding and abetting the fraud allegedly committed by Samuel Bankman-Fried. These charges are related to those filed against Bankman-Fried, FTX and Alameda.

In its litigation against the defendants, the CFTC is seeking restitution, civil monetary penalties, trading and registration bands, and a disgorgement. However, the CFTC cautions that victims may not always receive lost money, due to a lack of funds by the wrongdoers.

Projected FTX settlement amounts

At this point in time, it’s hard to predict the settlement amounts for any FTX class action lawsuits. It’s very early in the litigation process and there are not many comparable cases, due to the sheer size of FTX and the amount of money lost. There are also several different lawsuits taking place against FTX or FTX-related entities.

One lawsuit is seeking damages not from FTX itself, but from those who promoted it. This class action lawsuit is seeking over $5 billion in damages from celebrities and other prominent figures who promoted FTX. The lawsuit claims that these high-profile promoters did not properly research FTX before promoting the offer and sale of unregistered securities in the form of yield-bearing accounts. It’s unclear if this lawsuit has a chance of success and how much would ultimately be paid out, if so.

Do you qualify for a FTX lawsuit claim?

To qualify for an FTX lawsuit, you likely need to meet a few requirements. For starters, you must have invested in cryptocurrency through FTX. In addition, you must have suffered financial losses totaling more than $10,000.

You may also qualify for the FTX lawsuit if you used another cryptocurrency exchange that suffered losses as a result of the FTX collapse. These cryptocurrency exchanges include BlickFi, Gemini, Voyager, and Celsius. If you suffered significant losses on one of these exchanges as a result of FTX, you may be able to file a lawsuit. To learn more about your eligibility for any of the FTX lawsuits, we highly recommend reaching out to a lawyer who can discuss your specific situation with you. A lawyer can review your financial history and determine whether you have adequate standing to join an FTX lawsuit.