A U.S. District Court for the Southern District of New York has entered a consent order against FTX Trading Ltd. and Alameda Research LLC (collectively, FTX), requiring the companies to pay $12.7 billion in monetary relief to victims of their massive fraudulent scheme. The order, issued August 8, 2024, mandates $8.7 billion in restitution and $4 billion in disgorgement to compensate those who lost funds through FTX’s actions.
The CFTC’s complaint alleged that FTX and Alameda violated the Commodity Exchange Act (CEA) and CFTC regulations. The court found that FTX misrepresented its practices to customers, falsely claiming to offer a “safe and easy” way to trade cryptocurrency and that customer assets were segregated when, in reality, they were commingled and misappropriated. The fraudulent scheme was orchestrated by Samuel Bankman-Fried and a group of FTX insiders.
As part of a related settlement with the Bankruptcy Court for the District of Delaware, the CFTC agreed to subordinate its monetary claims to those of the victims and will not seek a civil monetary penalty against FTX. Payments made by FTX toward the $4 billion disgorgement obligation will be directed to a supplemental remission fund to further compensate victims. The plan is still pending approval in the bankruptcy proceedings.
CFTC Chairman Rostin Behnam emphasized the need for digital asset legislation, stating that FTX utilized “age-old tactics” and operated without basic regulatory safeguards. He noted that the resolution with FTX aligns with recent enforcement actions against other major crypto players like Binance, BitMEX, and Tether, but warned that this is “just the tip of the iceberg” without comprehensive legislation.
Ian McGinley, Director of the Division of Enforcement, hailed the recovery as the largest in CFTC history, achieved in a remarkably swift 21 months since FTX’s collapse. The CFTC’s Chicago-based team led the investigation and secured the consent order, demonstrating a commitment to pursuing justice for FTX’s victims.
The consent order also includes injunctions against further violations of the CEA and CFTC regulations, as well as trading and registration prohibitions. FTX and Alameda are required to cooperate with the CFTC in its ongoing litigation.
Source: CFTC.gov
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