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After a duration of 20 months, a U.S. court has rendered a final decision in the Commodity Futures Trading Commission’s (CFTC) lawsuit against the cryptocurrency exchange FTX and its affiliate Alameda Research. The firms are required to pay $12.7 billion to their creditors.
The U.S. District Court for the Southern District of New York has sanctioned a settlement agreement in the CFTC’s case involving FTX and Alameda Research. District Judge Peter Kastel officially endorsed the order mandating the defendants to pay $12.7 billion.
The ruling stipulates that FTX and Alameda Research must provide $8.7 billion in restitution to investors impacted by the fraudulent activities. Additionally, the companies are obligated to pay $4 billion in restitution to creditors. Importantly, the CFTC’s attorneys did not request a civil penalty from the companies but sought the court’s assurance that all defrauded investors receive compensation.
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As part of the settlement agreement, FTX and Alameda Research have also consented to halt all operations, including the buying and selling of digital assets on behalf of third parties. The firms are barred from participating in any cryptocurrency transactions.
Payments to creditors will commence once they vote on their preferred method of receipt. A key issue is that these payments are directly tied to FTX’s bankruptcy proceedings. Creditors are insisting that repayments be made in cryptocurrency, but this method contravenes the law, which mandates that the company pay the equivalent value of its assets at the time of the liquidation filing. Nevertheless, investors contend that the proposal to repay debts in fiat currency is inadequate, as it fails to consider the 165% rise in the overall capitalization of the cryptocurrency market following the collapse of the exchange. Creditors have until August 16 to reach a final decision. On October 7, District Judge John Dorsey will determine whether to approve or reject the repayment plan. Even if creditors favor cryptocurrency repayments, the court is not obligated to endorse such a method, as there is no existing precedent for it.
The CFTC initiated legal action against FTX, its former CEO, and Alameda Research in December 2022, citing breaches of the Commodity Exchange Act. Sam Bankman-Fried received a 25-year prison sentence.
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