CFTC Case Against FTX and Alameda Research Settled

After 20 months, a U.S. court issued a final ruling in the Commodity Futures Trading Commission’s (CFTC) case against crypto exchange FTX and its subsidiary Alameda Research. The companies must pay $12.7 billion to creditors.

The U.S. District Court for the Southern District of New York approved a settlement agreement in the CFTC’s case against FTX and Alameda Research. District Judge Peter Kastel formally approved the order under which the defendants agreed to pay $12.7 billion.

The ruling requires FTX and Alameda Research to pay $8.7 billion in restitution to investors affected by the fraud. The companies also must pay $4 billion in restitution to creditors. Notably, the CFTC’s lawyers didn’t ask the companies to pay a civil penalty, but asked the court to ensure that all defrauded investors are paid.

Under the settlement agreement, FTX and Alameda Research also agreed to cease all activities, including buying and selling digital assets on behalf of third parties. The companies are prohibited from engaging in any crypto transactions.

Payments to creditors will start as soon as they vote on exactly how they want to receive them. The sticking point is that the payments are directly related to FTX’s bankruptcy case. Creditors are demanding that repayments be made in crypto, but this approach is against the law, which requires the company to pay the equivalent of the value of its assets at the time of filing for liquidation. However, investors argue that the plan to repay debts in fiat currency is a sham, as it doesn’t take into account the 165% increase in the overall capitalization of the crypto market following the collapse of the crypto exchange. Creditors have until 16 August to make a final decision. On 7 October, District Judge John Dorsey will make a ruling on whether to approve or reject the repayment plan. Even if creditors vote in favor of crypto repayments, the court is under no obligation to approve such an approach, as there’s no precedent for doing so.

The CFTC filed suit against FTX, its ex-CEO, and Alameda Research in December 2022, alleging violations of the Commodity Exchange Act. Sam Bankman-Fried was sentenced to 25 years in prison.

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