As the dust settles from one of the most shocking Financial implosion in historyOne of the unknowns is how much money customers without access to their own money can get back from FTX, the cryptocurrency exchange that filed for bankruptcy last week.
According to legal experts, the answer may be zero.
Before being unraveled, FTX.com touted itself as a novice-safe destination for buying and selling cryptocurrencies. However, the liquidity squeeze last week forced FTX to suspend withdrawals, leaving customers and investors at a loss. FTX reportedly used client funds According to The Wall Street Journal, it is to illicitly endorse a sister hedge fund’s risky trading operations.
On Friday, FTX and hedge fund Alameda Research filing for bankruptcyAuthorities in FTX’s home Bahamas launched a criminal investigation into the company over the weekend. Authorities including the U.S. Securities and Exchange Commission and the Department of Justice are also investigating the company, they said. multiple news outlets.
The legal implications for FTX and its founder Sam Bankman-Fried remain unclear. It looks more and more likely that you will be left with a bag.
“We don’t know the extent of the infection,” said Howard Fisher, a partner at Moses Singer Law Firm and a former Securities and Exchange Commission attorney. “The first circle of victims are people who had assets held on FTX…they probably never quite or even come close.”
There are several reasons for this.
In a traditional U.S. bank failure, the government guarantees customer deposits, totaling up to $250,000.but simply No depositor insurance mechanism In a largely unregulated cryptocurrency world.
In theory, FTX’s customers should receive the remaining portion of the company’s assets at the end of the bankruptcy process. But it’s not clear how much payment remains, at least so far.
“As far as I know, they have two assets: the credit value of the exchange and the value of the FTT coin,” said Eric Snyder, head of bankruptcy at Wilk Auslander Law Firm. The value of refers to intangible assets such as brand reputation and intellectual property, and FTT Coin, a crypto token issued by FTX, has lost more than 90% of its value in the past week.)
According to Snyder, in the case of bankruptcy, there is a fairly simple formula for calculating the amount creditors (in this case, FTX depositors) will receive.
“The numerator is an asset, the denominator is a liability. You divide one into the other, [result] Everyone gets it,” he said. “But when people are pulling out all their assets, there isn’t much of a molecule.”
He added: “It is highly probable that the returns will be minimal at best.
Of course, FTX’s plunge was sudden, and lawyers say it’s a difficult case to assess early on.
It usually takes a company several weeks to prepare a bankruptcy filing, which includes, among other things, an explanation of why the company sought Chapter 11 protection and what it is trying to accomplish in bankruptcy court. is included.
Dan Besikof, a partner at Logan & Loeb LLP who specializes in bankruptcy, said it’s too early to tell if customers will get their money back.
“All you can really do is infer the situation from the tweet,” he said. “And how customers retrieve their money can depend on many things, such as the entity holding the money and how much coins they still have left.”
The impact of FTX has rocked the entire crypto industry, raising serious questions about the future of digital assets and the lack of regulation worldwide.
On Monday, Changpeng Zhao, CEO of FTX rival Binance, tried to reassure the audience about the legitimacy of the sector.
“People are obviously nervous,” said Zhao, popularly known as CZ, during a Q&A session. on Twitter“What I’m trying to say is that it’s a pain in the short term. But I think this is actually good for the industry in the long term.”
huge crypto exchange Temporarily surfaced as a lifeline Before reversing FTX’s offer last week before reversing course.
Zhao, whose tweet announcing Binance’s sale of FTX fueled a liquidity crisis for small businesses, denied that he had a “master plan” to go public with FTX. Still, critics point out that the biggest, and perhaps only, winner in FTX’s downfall is none other than Zhao, arguably the richest and most influential player in digital asset trading.
“As much as some people accuse me of whistleblowing and poking the bubble, I apologize for that…I apologize for the confusion I caused. I think the sooner we reveal it, the better.”
—Matt Egan of CNN Business contributed to this article.