Latest FTX Lawsuit Updates

June 2023: Following the May hearing, the JPML issued a transfer order on June 5, directing all FTX lawsuits filed throughout the federal court system to be consolidated into a FTX MDL. The Panel ordered the claims to be centralized in the Southern District of Florida before U.S. District Judge Michael Moore for pretrial proceedings.

May 2023 Update: In response to a motion to centralize a growing number of FTX financial loss claims being filed by customers, the U.S. Judicial Panel on Multidistrict Litigation (JPML) held oral arguments on May 25 at the James A. Byrne U.S. Courthouse in Philadelphia. At the hearing, the Panel was presented arguments and evidence by both parties on whether centralization of the claims was appropriate.

Why Did FTX Collapse?

FTX collapsed due to a liquidity crisis, which occurs when a company lacks enough cash to meet its financial responsibilities. The FTX crisis was triggered when a large volume of customer withdrawals created an $8 billion gap that FTX was unable to cover.

In 2017, investor and entrepreneur Samuel Bankman-Fried founded Alameda Research, which is a cryptocurrency trading company that makes a profit by buying crypto on one blockchain platform and then selling it on another.

After Bankman-Fried’s initial success with Alameda, he and two other investors, Gary Wang and Nishad Singh launched FTX as a crypto exchange company in 2019, which allowed individuals to invest, trade and sell cryptocurrencies.

As part of the platform’s services, FTX created its own token out of “thin-air” called FTT. The FTT token was promoted to investors as a way to buy, trade, and sell cryptocurrencies on the FTX exchange at a discount, which could also be used to access certain trading features.

After only a few years of operation, popular crypto news website CoinDesk published an in-depth investigation of FTX’s business dealings in November 2022. The article revealed how the FTT tokens sold to investors by FTX were not widely distributed on the cryptocurrency market, as individuals were led to believe. Rather, the article stated the primary holder of FTT tokens was Alameda Research. The report revealed that, as of June 30, 2022, Alameda held more than $5.8 billion “worth” of FTT among its purported $14 billion in assets.

According to the CoinDesk article, FTX did not inform investors about the close financial relationship between FTX and Alameda Research, which are both companies owned by Samuel Bankman-Fried.

FTX investors became concerned that most FTT tokens were being held by Alameda Research, and not available on the open crypto marketplace. As the news broke, Binance announced it was selling off $2.1 billion “worth” of FTT tokens, prompting a bank run and investors withdrew approximately $6 billion from FTX within 72 hours.

The FTX collapse occurred because the company did not have enough funds to cover this unexpected financial obligation, since it had secretly been funneling billions of dollars worth of customer deposits into its sister company Alameda Research for private investment gains.

FTX Misused Customer Funds For Alameda Research Investments

As the liquidity crisis unfolded, it was revealed that FTX lacked the cash to pay investor withdrawal requests because it had been transferring billions of dollars worth of client funds paid for FTT tokens into its sister company Alameda Research.

Put simply, FTX executives were promoting and selling their proprietary token as a physical asset to customers, while giving Alameda Research access to use customer funds to make risky bets on volatile cryptocurrencies, cover losses during a cryptocurrency bear market and finance the lavish lifestyles of FTX executives.

Lawsuits claim FTX executives used customer funds to purchase more than 35 properties in the Bahamas for more than $250 million, including luxury condos and vacation homes for management, and land for a future corporate headquarters.

According to allegations raised in cryptocurrency investor lawsuits, FTX executives exploited the lack of corporate controls under current regulation of the cryptocurrency industry, and made many of these transfers from FTX to Alameda “off the books,” without any accounting record or notice to customers.

Bankman-Fried and other FTX executives were able to maintain the financial relationship between FTX and Alameda Research as long as there weren’t too many cash withdrawal requests from FTX investors. However, when reports of the company’s financial issues went public, many investors demanded a lot of money at once. Neither FTX nor Alameda had enough cash on hand to fulfill those requests, which spiraled the companies into bankruptcy.

FTX Operated a Modern-Day Ponzi Scheme

Within weeks of FTX’s collapse, former investors began filing lawsuits accusing FTX of engaging in a Ponzi scheme.

Ponzi scheme: A Ponzi scheme is a type of investment fraud that pays profits to existing investors with funds from newer investors. Ponzi schemes typically lure investors with promises of quick, high-dollar returns and little financial risk. Ponzi scheme profits are not legitimate, because they are generated from new investor funds, not actual business dealings. In many Ponzi schemes, investor funds are also illegally funneled to the business owner for their personal use.

In the case of FTX, lawsuits claim that the company’s founders knowingly operated it as a Ponzi scheme because they misrepresented its stability to investors. The lawsuits also allege that FTX engaged in Ponzi activities because the founders illegally funneled customer funds into its sister company Alameda Research instead of legitimately investing them on the open market.

FTX Bankruptcy Filing

After FTX was unable to fulfill its customers’ withdrawal demands, Binance tentatively agreed to buy FTX for an undisclosed price, which may have prevented the FTX collapse and bankruptcy. However, Binance canceled all intentions of purchasing FTX within 24-hours of discussions, indicating it was unable to move forward following a corporate due diligence inquiry of FTX dealings. .

When the buy-out failed, FTX filed for bankruptcy on November 11, 2022, in the U.S. District of Delaware, where the company is incorporated.

As part of Chapter 11 bankruptcy proceedings, companies are temporarily granted an automatic stay against action from creditors, including any investors. The stay is given so that companies have time to develop a debt repayment plan and negotiate repayment terms with creditors.

How long will FTX accounts be frozen?

Investors who have funds tied up in a FTX’s bankruptcy proceedings typically must wait until the business finalizes a repayment plan before they can attempt to recoup their money. In situations like the FTX bankruptcy filing, where a large company defaults on billions of dollars, finalizing a repayment plan can take years.

FTX froze most withdrawals before it filed for bankruptcy, as its funds quickly dwindled. When the company is officially undergoing the Chapter 11 process, all customer withdrawals ceased, and former investors were unable to access their investments.

The FTX bankruptcy proceedings are especially complicated because the company failed to keep detailed accounting records of its transactions. In addition, investigators still aren’t sure how much of FTX’s assets remain to pay back creditors since the company funneled so much of its funds to Alameda Research in the form of FTT tokens.

FTX Investor FAQs

How much in FTX customer funds are missing?

The total amount of missing FTX customer funds is estimated to be around $9 billion.
Has FTX recovered customer funds?

On March 13, 2023, FTX lawyers reported at a bankruptcy hearing that $7.3 billion in cash and liquid crypto assets have been recovered, which is an increase of more than $800 million since January 2023.

The recovery process is still ongoing, with liquidators recovering and securing approximately $1.4 billion of crypto-assets and identifying an additional $1.7 billion they are still working to recover.

Will FTX customers get their money back?

There is no guarantee that FTX will be able to repay customers their investment money back after creditors are paid out through the bankruptcy proceedings.

Individuals are filing FTX lawsuits demanding the court to prioritize FTX customer payouts ahead of creditors. Lawyers are arguing that FTX illegally used customer funds to accrue their debts, and that customers should be repaid ahead of creditors making claims to FTX assets during bankruptcy proceedings.

Will FTX’s FTT token still have value after bankruptcy?

Due to the volatility of the cryptocurrency market and the daily value of cryptocurrency fluctuating daily, it’s almost impossible to predict what, if any, monetary worth FTX’s FTT tokens will still have when bankruptcy proceedings are complete.

FTX Endorsements Manipulated Investors

FTX class action lawsuits have also been filed against high-profile celebrities and internet “influencers” who allegedly engaged in deceptive marketing by endorsing FTX.

The lawsuits allege that the celebrity endorsers failed to conduct proper due diligence on FTX before promoting it, and broke consumer protection laws by not publicly disclosing their financial arrangements with FTX, who paid endorsers handsomely to promote their platform.

Several of high profile celebrities that have been named in lawsuits for deceptive marketing practices based on their endorsements of FTX include;

• NFL star Tom Brady
• Supermodel Gisele Bundchen
• NBA star Steph Curry
• Tennis star Naomi Osaka
• “Shark Tank” TV show star Kevin O’Leary

Cryptocurrency Exchange Bankruptcy Lawsuits

The collapse of FTX created an industry-wide crisis of confidence in the cryptocurrency space, which caused a contagion effect among various crypto platforms that were financially tied to FTX in one way or another.

Gemini Earn Lawsuits

The collapse of FTX had a significant impact on Gemini due to their partnership with Genesis Global Capital, a crypto lender that had a substantial exposure to FTX.

Following the collapse of FTX, Genesis Global Capital paused new loan originations and froze approximately $900 million of Gemini Earn users’ funds on November 16, 2022. While Genesis Global Trading claimed the decision was made due to extreme market dislocation related to the FTX implosion, the lender subsequently revealed that it had upward of $175 million locked up in FTX.

The leading financial lender for Gemini would later go on to file bankruptcy in January 2023, leaving it very unclear whether Gemini Earn participants will be able to recover their funds through the bankruptcy proceeding. Gemini has advised its users to file a Master Claim to preserve their eligibility to potentially recover losses through the Genesis bankruptcy proceeding.

BlockFi Lawsuits

BlockFi is another company that halted customer withdrawals and froze platform activity before filing bankruptcy on November 28, 2022. In the wake of FTX’s collapse, BlockFi was met with a liquidity crisis of its own when FTX was unable to pay nearly $400 million in loans.

BlockFi received a financing package from FTX in July 2022, which granted the company several lines of credit, including a $400 million credit facility. The credit was intended to help BlockFi manage a liquidity constraint caused by its exposure to the collapse of the TerraUSD stablecoin.

When FTX filed for bankruptcy, it was unable to repay the loan to BlockFi. This forced BlockFi to pause its platform and stopped consumer withdrawals due to its exposure to FTX. BlockFi is now facing legal action and a securities class action against its founders and executives.

Voyager Lawsuits

Another popular cryptocurrency exchange, Voyager, suspended trading, deposits, withdrawals, and loyalty rewards on July 1, 2022, after one of its customers, Three Arrows Capital, filed for bankruptcy and failed to repay a loan worth $650 million.

The news stirred concerns and created a lack of confidence in investors that resulted in a bank run on Voyager. The crypto exchange ultimately filed for bankruptcy in July 2022, stating that it would remain in business as it reorganized its affairs.

In September 2022, FTX won an auction for Voyager’s assets in an agreement valued at about $1.4 billion. However, court filings later revealed that FTX only paid $51 million in cash for Voyager’s assets, causing delays in the acquisition of Voyager’s assets and potentially costing Voyager $10 million per month.

Celsius Lawsuits

Celsius filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York in July 2022. The main cause for the bankruptcy was that Celsius’s liabilities outweighed its assets by $1.2 billion.

During the bankruptcy proceedings, an Official Committee of Unsecured Creditors stated that Celsius made false statements publicly that signaled keeping money with Celsius was safer than that of a bank. The committee has also asserted claims including fraud and negligent misrepresentation against Celsius on behalf of its account holders.

Additionally, it has been reported that the co-founders of Celsius pulled out millions of dollars in assets before the crypto firm froze client withdrawals, which may have played a role in the company’s financial difficulties.

How an FTX Cryptocurrency Lawyer Can Help

The legal landscape of cryptocurrencies is complex and constantly evolving. The cryptocurrency lawyers at Saiontz & Kirk, P.A. can help provide you with a comprehensive understanding of the laws and regulations governing the cryptocurrency market, and how they impact your rights to pursue a lawsuit.

Our lawyers can help you build your case by investigating your losses and gathering evidence to maximize your potential FTX lawsuit settlement. This may include analyzing transaction records and consulting with experts to identify the cause and extent of the loss.

All financial fraud lawsuits are handled by our attorneys under a contingency fee agreement, which means that there are never any fees or expenses paid unless we are successful in obtaining a settlement or other recovery in your case.

The FTX fraud lawyers at Saiontz & Kirk, P.A. provide free consultations and case evaluations to help individuals review the legal options that are available to them. Contact our office toll-free at 1-800-522-0102 or request a free consultation below to discuss the facts and circumstances surrounding your FTX fraud lawsuit.

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