The U.S. Commodity Futures Trading Commission (CFTC) has announced that the U.S. District Court for the Southern District of New York has issued a consent order of permanent injunction and equitable relief against FTX Trading Ltd. and Alameda Research LLC. The court ordered the now-bankrupt entities to pay a staggering $12.7 billion in monetary relief to compensate customers and victims of one of the largest frauds in the digital asset space.
This judgment marks a pivotal moment in the CFTC’s ongoing efforts to hold fraudulent actors accountable in the digital asset markets. The court’s order requires FTX to pay $8.7 billion in restitution and an additional $4 billion in disgorgement. These funds are earmarked to further compensate victims who suffered significant losses due to the fraudulent scheme masterminded by Samuel Bankman-Fried and his inner circle at FTX.
Record-Breaking Recovery for Victims
The court’s findings are damning. FTX and Alameda were found to have violated the Commodity Exchange Act (CEA) and CFTC regulations by making material misrepresentations and omissions to their customers. The companies falsely promoted themselves as a “safe and secure” platform for buying and selling cryptocurrencies, claiming that customer assets were held in custody and segregated from FTX’s own funds. In reality, these customer assets, including significant holdings in Bitcoin and Ether, were commingled and misappropriated, fueling the fraudulent activities at the heart of FTX’s operations.
Division of Enforcement Director Ian McGinley highlighted the unprecedented scale of the recovery secured by the CFTC, noting that the $12.7 billion judgment is the largest such recovery in the agency’s history.
Related Proceedings and Future Implications
The consent order follows a CFTC complaint filed in December 2022, which charged its co-founder and former CEO Sam Bankman-Fried and his associates with orchestrating the fraudulent scheme. The case has also seen consent orders of judgment against former FTX executives Caroline Ellison, Zixiao “Gary” Wang, and Nishad Singh, with the CFTC continuing its litigation against Bankman-Fried and other individuals involved.
In a related development, the Bankruptcy Court for the District of Delaware approved a settlement in which the CFTC agreed not to seek additional civil monetary penalties against FTX. Instead, the CFTC’s disgorgement claims will be subordinated to those of the victims, ensuring that the maximum possible compensation is directed toward those who were defrauded.
