FTX and Alameda Ordered to Pay $12.7 Billion Over Crypto Fraud

Jack Oliver -

A New York judge has officially approved a $12.7 billion settlement, requiring FTX and its sister company, Alameda Research, to compensate creditors following the companies' spectacular collapse. The ruling, issued on August 7, 2024, by U.S. District Judge Peter Castel, marks the conclusion of a 20-month legal battle with the Commodity Futures Trading Commission (CFTC).

Under the terms of the consent order, FTX and Alameda will pay $12.7 billion, which will be distributed among the creditors affected by the companies' bankruptcy. The settlement includes $8.7 billion earmarked for restitution to investors who suffered significant losses due to the fraudulent activities of FTX, and an additional $4 billion in disgorgement. This agreement resolves the CFTC's litigation against the two companies, which had accused them of widespread fraud and misrepresentation in promoting FTX as a secure digital commodity platform.

Judge Castel's order permanently bans FTX and Alameda from trading digital assets or acting as intermediaries in any future transactions. This ruling aims to prevent the companies from engaging in any activities that could further harm the market or investors.

The downfall of FTX, once a dominant player in the cryptocurrency market, began in late 2022 when the company filed for bankruptcy. The filing revealed a massive misappropriation of customer funds, leading to the loss of billions of dollars. Sam Bankman-Fried, the founder of FTX and Alameda, was subsequently convicted of multiple charges, including fraud and money laundering. In March 2024, he received a 25-year prison sentence and was ordered to forfeit $11 billion.

The CFTC, which was named as FTX's largest single creditor, did not pursue civil monetary penalties in this case, allowing the entire $12.7 billion to be returned to the creditors. The court's decision also enables the creditors to choose their preferred payout method, whether in fiat currency or cryptocurrency, with a final ruling on this matter expected later this year.

This case highlights the vulnerabilities and risks within the cryptocurrency market, particularly in the absence of stringent regulations. The settlement serves as a significant step towards compensating those affected by the collapse of FTX and Alameda, while also sending a strong message about the importance of transparency and accountability in the financial sector​