U.S. Orders FTX to Compensate Ex-Crypto Customers with $12.7 Billion

The digital currency platform created by the disgraced entrepreneur Sam Bankman-Fried is mandated to compensate ex-clients and other injured parties for multiple billions, according to a statement made on Thursday by the Commodity Futures Trading Commission (CFTC).

The cryptocurrency exchange FTX Trading, alongside its associate digital currency company Alameda Research, are obliged to fulfill a restitution payment of $12.7 billion as stipulated by a consent decree issued by the U.S. District Court in the Southern District of New York.

CFTC Chairman Rostin Behnam warned that “FTX resorted to traditional subterfuges to cultivate a facade of being a trustworthy and secure gateway to the cryptocurrency markets.” He lamented the lack of fundamental regulatory frameworks, like oversight, client security, and monitoring, that should detect and prevent such infringements.

The legal decree revealed FTX’s breaches of CFTC policies, particularly misinforming and misleading statements to customers about their operations. The exchange once advertised itself as “the safest and easiest way to buy and sell crypto,” yet it was proven that customer funds were not kept separate as promised, leading to their misappropriation.

After being found guilty of fraud and further misdeeds in November 2023, Bankman-Fried was sentenced in March to a twenty-five-year prison term by the U.S. Department of Justice and was ordered to surrender $11 billion for executing several deceptive strategies.

Bankman-Fried’s brainchild, FTX, initiated in 2019 as a global digital currency exchange, which managed billions in trade volumes. The Department of Justice disclosed that he had diverted funds for personal indulgence and for significant political donations from April 2019 to December 2022, leading up to his apprehension in the Bahamas and subsequent extradition to the U.S. to face the charges of fraud.

As per CFTC Chairman Behnam, the restitution edict for FTX is “merely the start.” He stressed that without legislative policies specific to digital assets to bridge regulatory lacunas, entities could persist in murky operations without requisite regulatory measures, hence sharpening their fraudulent tactics and continuing to hoodwink clients.

While U.S. legislators have introduced a bill to integrate digital currencies within the established financial regulation system of the nation, it remains in limbo. Notably, the U.S. stands as the leading cryptocurrency marketplace globally with approximately $10 billion in yearly revenue.