this post was submitted on 09 Aug 2024
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A US court has ordered the bankrupt cryptocurrency exchange FTX to shell out $12.7bn (£9.9bn) to compensate customers and fraud victims, five months after its founder was jailed for his role in the collapse of the company.

The Commodity Futures Trading Commission (CFTC) said it was the “largest such recovery” in the regulator’s history and would help return funds to those affected by the “massive fraudulent scheme orchestrated by Sam Bankman-Fried, his now-bankrupt FTX group of companies, and a core group of FTX insiders”.

FTX imploded in late 2022 amid a crypto price crash. Its founder, Bankman-Fried, was jailed in March for 25 years after he was convicted of fraud and conspiracy to launder money late last year. He has been ordered to forfeit $11bn in assets.

FTX, which was once worth $32bn, had used customer funds for risky investments, through a closely associated hedge fund, Alameda Research. Bankman-Fried in turn used customer money for his own exploits, including large political donations in his name, luxury cars, properties in the Bahamas and endorsements from A-list celebrities.

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[–] lemmy_in@lemm.ee 10 points 2 years ago (1 children)

There are a few ways that the court can get this money. Disclaimer I am not an expert in bankruptcy law.

The most obvious one is what you said. The court can order the company's assets to be liquidated and then the proceeds of the sales would be distributed proportionally among the creditors.

Next they can go after the perpetrators like Sam Bankman-Fried and his crew. If they have any personal assets that they acquired as a result of their criminal activity at FTX, the court may be able to take some of that money to pay creditors.

Lastly is "clawbacks". Let's say you invested $1,000,000 in FTX and you were one of the lucky ones and happened to withdraw $10,000,000 in proceeds during the height of the scam. The court could claw back up to $9,000,000 from you since all of those proceeds were the result of a scam, even if you had no idea that FTX was shady. This is typically how the courts recover money from ponzi schemes like Bernie Madhoff

[–] rock_hand@lemmy.world 7 points 2 years ago

Damn I didn’t know clawbacks were a thing. That would really suck if you just happened to benefit because of timing and someone else slurped your profits away. Fair though.