On August 8, the Commodity Futures Trading Commission (CFTC) announced that the U.S. District Court for the Southern District of New York entered a consent order requiring FTX Trading Ltd. and Alameda Research LLC (collectively FTX) to pay $12.7 billion in monetary relief to customers and victims of the company’s fraud, $8.7 billion in restitution, and $4 billion in disgorgement fees.
The consent order resolved the CFTC fraud enforcement action against FTX for violations of the Commodity Exchange Act (CEA) and various CFTC regulations. The order states that FTX and Alameda made material misrepresentations and omissions to customers while touting itself as “the safest and easiest way to buy and sell crypto.” The order addresses a scheme orchestrated by Samuel Bankman-Fried, his now-bankrupt FTX group of companies, and a core group of FTX insiders.
This is the largest recovery for victims in CFTC history, according to the agency.
The order also requires FTX to cooperate with the CFTC’s ongoing litigation and imposes a permanent injunction against further violations of the CEA and CFTC regulations and trading and registration prohibitions.
The Division of Enforcement Director Ian McGinley said, “Not only is this multi-billion dollar recovery for victims the largest such recovery in CFTC history, we achieved it with remarkable speed. FTX’s massive fraud collapsed 21 months ago and in that time the CFTC investigated, filed a complaint, and achieved what many thought was impossible at the time of the collapse – a resolution to compensate victims for the losses they suffered.”
“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. “In the absence of digital asset legislation to fill regulatory gaps, entities will continue to operate in the shadows without these basic tools of sound regulation, sharpening their deceptive practices and continuing to dupe customers,” Behnam added.
Although it is not clear if this action was the result of a whistleblower tip, people with inside information can report misconduct to the CFTC and may be eligible for a financial reward. Under the CFTC’s rules, whistleblowers can earn awards between 10% and 30% of the money the agency collects in an enforcement action, as well as recoveries in related actions based on the whistleblower’s original information. For a whistleblower to be eligible for a reward, the CFTC must collect more than $1 million in monetary sanctions as a result of the whistleblower’s original information.
To have an experienced whistleblower attorney help you with a potential CFTC matter, contact Phillips & Cohen for a confidential review of your matter.