Customers of FTX initiate class-action lawsuits in order to receive preferential damages.

by | Jan 2, 2023 | News | 0 comments

Futures Exchange (FTX): definition and connotation

FTX Trading Ltd., or FTX, is a bankrupt firm that operated a cryptocurrency exchange and hedge fund in the past. The exchange was founded in 2019 and had over one million clients at its peak in July 2021, ranking it third in terms of volume. FTX was founded in Antigua & Barbuda and has its headquarters in the Bahamas. FTX is closely related to FTX.US, a separate exchange for US citizens. FTX has been in Chapter 11 bankruptcy proceedings in the US court system since November 11, 2022.

Concerns were raised after a CoinDesk report published in November 2022 said that FTX’s partner business Alameda Research owned a considerable chunk of its assets in FTX’s native coin (FTT). Following this discovery, rival exchange Binance’s CEO Changpeng Zhao said that Binance will liquidate its token holdings, prompting a surge in client withdrawals from FTX.

FTX was unable to satisfy consumer withdrawal requests. Binance signed a letter of intent to buy the business, with due diligence to follow, to guarantee that clients’ cash could be recovered from FTX in a timely way, but Binance retracted its offer the next day, citing claims of mismanaged customer funds and US government investigations. On December 12,2022, founder Sam Bankman-Fried was detained for financial crimes by Bahamian authorities at the behest of the US government.

John J. Ray III, the current CEO of FTX, specializes in recovering cash from bankrupt firms. Ray stated that he had never witnessed such a catastrophic failure of business controls and such a complete lack of trustworthy financial information as occurred here.

Customers of FTX launch a class action lawsuit to have their payments prioritized.

Four FTX clients have launched a class action lawsuit seeking priority recovery for $2 billion in unpaid consumer payments. The claim was filed in the United States Bankruptcy Court for the District of Delaware, where FTX is now in bankruptcy proceedings. Retail customers who experienced financial losses as a result of FTX and sister business Alameda Research’s bankruptcy filing “should not have to stand in line” with other creditors waiting for cash recovery, according to the complaint.

Former Alameda Research CEO Caroline Ellison told investigators that customer cash at FTX was misused to bridge financial deficiencies in the closely related investment firm Alameda Research. The illicit FTX transfers to Alameda, according to the plaintiffs, were in flagrant violation of FTX’s own customer agreements and terms of service, as well as common law and basic principles of honesty and fair dealing. In mid-December, a committee of unsecured creditors was constituted for over 100 businesses that had invested in the defunct exchange and its related activities but had no security for what FTX owed them.

According to the court petition, “cash and assets traceable to consumers that were never owned by FTX or Alameda and do not belong to the estates should be put aside entirely for the customers,” and Wronged clients should be given top priority over any additional monies owed or is recovered by [the group of related debtors]. Sam Bankman-Fried, co-founder of FTX and Alameda, is facing a slew of fraud charges that may land him in prison for up to 115 years. Earlier last month, Ellison and FTX co-founder Gary Wang pled guilty to criminal and civil charges, adding to Bankman’s already significant legal weight.