Failed FTX exchange to distribute $12.7B in settlement with CFTC

The US Commodities Futures Trading Commission (CFTC) reached an agreement with the FTX exchange. The clients of the failed investment platform will be compensated with $12.7B. 

FTX Trading Ltd. and Alameda Research LLC will compensate their creditors with $12.7B, after a settlement with the US CFTC. The settlement includes $8.7B in restitution and $4B in disgorgement to compensate the victims of losses. The CFTC will not retain the disgorgement payment, but instead use it to cover creditor losses.

There is no official schedule for repaying customers. Holders of FTX funds must be aware of potential scams, especially malicious pages that require the connection of a wallet. 

FTX caused massive repercussions on the crypto market after unraveling in 2022. The indirect losses were much bigger, as they caused other investment funds to crash. The FTX collapse also precipitated the fall of Three Arrows Capital and caused a deep cut to the value of Solana (SOL). 

The recent compensation requirement will not end all FTX legal procedures, as more holdings and wallets of the former exchange were investigated. The CFTC was concerned with the main fraud of FTX – the commingling of assets with Alameda Research, and the allocation to those assets to risky tokens and NFT. 

“FTX used age-old tactics to create an illusion that it was a safe and secure place to access crypto markets. But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there,” 

said CFTC Chairman Rostin Behnam.

FTX not only used depositor funds, but tapped other crypto lenders for loans, adding to the contagion. 

The CFTC agreed to distribute all remaining FTX funds to creditors, instead of retaining fines for financial crimes. The distribution of funds to creditors will conclude the case against FTX Trading, Inc., leaving lawsuits against individual defendants. The CFTC will continue the lawsuits to litigate Samuel Bankman-Fried, Caroline Ellison and Zixiao ‘Gary’ Wang and FTX insider Nishad Singh.

In the case against individual defendants, the CFTC will seek a ban on trading and registration as trading entities, as well as permanent injunction against violating CEA and CFTC market regulations. The ongoing litigation will eventually block the path to relaunching FTX under any form. 

FTX still liquid thanks to the bull market

FTX did not erase all of its value, unlike protocols like Terra (LUNA). The seemingly random buying meant FTX held accessible wallets on-chain with sufficient funds to compensate its users. 

Existing FTX wallets may be able to compensate up to 98% of holders with 118% of the value. The big difference is that FTX creditors would seek compensation in crypto, knowing the risks of liquidating the assets. Recently, creditors also aimed for compensation based on their crypto holdings at the time of the FTX crash. 

One of the problems for creditors is that not all FTX wallets have been disclosed. Rumors and evidence show some of the SOL holdings of FTX may still exist. A recent leak points to the existence of a wallet with 8% of the SOL supply. Previously, Bankman-Fried has denied any backdoors or access to secret wallets. 

On August 8, a wallet controlled by Alameda managed to transfer Worldcoin (W) tokens to Binance. Known remaining wallets with altcoins and tokens for FTX and Alameda still contain $630M. Alameda wallets have been active in the past years, moving SOL to new addresses. Most SOL tokens have been moved to a special recovery wallet. But residual holdings like the FTX Cold Storage wallet 2 have logged recent activity, even interactions with Solana mini-games. 

FTT tokens are still available for live trading, with a price of around $1.30. The tokens make use of their exchange listings, despite fears they may be liquidated to repay creditors. FTT has a slim market and has invited speculation around news about the FTX case. FTT remains highly risky, with a market depth of $95K and significant price slippage. 

Cryptopolitan reporting by Hristina Vasileva