FTX and Alameda Pay $12.7 Billion to End CFTC Lawsuit

FTX and sister company Alameda Research have agreed to pay their creditors $12.7 billion.

The agreement, approved Wednesday (Aug. 7) by U.S. District Judge P. Kevin Castel, is part of a settlement between the fallen cryptocurrency platform and the Commodity Futures Trading Commission (CFTC).

Under the agreement, FTX and Alameda will pay back $8.7 billion to investors defrauded by Sam Bankman-Fried, the now-jailed founder of FTX. The companies must also pay a $4 billion “disgorgement” for “gains received in connection with the violations” mentioned in the CFTC’s complaint against the defendants.

The order also bans FTX and Alameda Research from “cheating or defrauding” commodity customers, engaging in transactions involving “digital asset commodities,” either by themselves or on behalf of third parties. However, the agreement does not require the companies to pay a civil penalty.

FTX had been one of the most prominent crypto exchanges until November of 2022 when a liquidity shortage led to its quick demise.

The CFTC had accused Bankman-Fried of orchestrating a fraud at the company with the help of his executives, who used billions in FTX funds – including customer funds — to trade on other crypto exchanges and fund “high-risk” digital asset investments.

Bankman-Fried was convicted last year of fraud and conspiracy to commit money laundering and sentenced in March to 25 years in prison. He is appealing the verdict.

Two other ex-FTX executives are scheduled to be sentenced this fall: former director of engineering Nishad Singh in late October and co-founder Gary Wang in November.

Singh pleaded guilty last year and agreed to cooperate with prosecutors, admitting that he knew by the middle of 2022 that Bankman-Fried was using customer funds without their knowledge. He testified during Bankman-Fried’s criminal trial that he was “embarrassed and ashamed” of reckless and excessive outlays made by his boss, even before he learned the money was coming from allegedly stolen customer funds.

Wang pleaded guilty to fraud in December 2022. Authorities had charged that he created the specific software code that allowed FTX-affiliated company Alameda to divert FTX customer funds. He also testified on behalf of the prosecution, saying that although Bankman-Fried knew of the multi-billion-dollar deficit at Alameda and FTX, he repeatedly told customers and investors that “FTX was fine.”

PYMNTS-MonitorEdge-May-2024