U.S. District Judge Kevin Castel has ordered FTX, the failed cryptocurrency exchange that was at the center of disgraced former CEO Sam Bankman-Fried’s fraud, to pay customers $12.7 billion. On Wednesday, Castel ordered FTX to pay $8.7 billion in restitution to victims of Bankman-Fried’s fraud, as well as an additional $4 billion “gains received in connection with the violations.
Ian McGinley, the director of enforcement for the Commodity Futures Trading Commission (CFTC), said that this significant sum marks “the largest such recovery in CFTC history.” McGinley explained that FTX’s massive fraud collapsed 21 months ago, and since then, the CFTC has investigated, filed a complaint, and achieved what many thought was impossible at the time of the collapse – a resolution to compensate victims for the losses they suffered.
ArsTechnica reported that FTX could have owed more; however, because the CFTC prioritized speedy repayment of victims, the CFTC “agreed not to seek a civil monetary penalty against FTX” in a related settlement agreement approved by the Bankruptcy Court for the District of Delaware. The CFTC said this in a press release celebrating the order.
Restitution comes after Castel found that FTX had violated the Commodity Exchange Act (CEA) and CFTC regulations. His order “imposes injunctions against further violations of the CEA and CFTC regulations, as well as trading and registration prohibitions, and requires FTX and Alameda to cooperate with the CFTC in its ongoing litigation,” according to the CFTC.
CFTC chairman Rostin Behnam criticized FTX for using “age-old tactics” to create the illusion that assets they purchased on the platform were secure. He said that FTX took advantage of the fact that “the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there.
Victims’ attorneys Adam Moskowitz and David Boies had expressed dismay in June that the situation had led many FTX customers to feel “aggrieved and robbed.” In early November, Bankman-Fried was convicted of five counts of conspiracy and two counts of wire fraud. He was subsequently sentenced to 25 years in prison.