The FTX Collapse: Will Customers See a Return on Their Investments?

Many customers are still wondering how much, if any, of their money will be returned. In this article, we will dive deep into the recent developments in the FX case, including what transpired in the hearing, how exactly $5 billion was recovered, and whether or not Sam Bankman-Fried, the founder of FTX, thinks customers can be made whole.

The Backstory

On November 7th, Sam Bankman-Fried, the founder of FTX, tweeted that FTX and its assets were fine. However, he later deleted that tweet, and it turned out that FTX was far from fine. Bankman-Fried was indicted on two counts of wire fraud and six conspiracy counts for allegedly stealing customer deposits to pay debts incurred by his hedge fund, Alameda Research. In addition, he is accused of lying to equity investors about FX’s financial stability and has pleaded not guilty.

The founder of FTX, Sam Bankman-Fried, recently outlined the three main causes that led to the implosion of the platform.

According to Bankman-Fried, it all started when Alameda Balance, a hedge fund associated with the FX trading platform, grew to roughly $100 billion in net asset value. In addition, the fund had borrowed or leveraged to the tune of $8 billion, with about $7 billion in liquidity. This seemed like a solid foundation at the time, but things quickly went awry.

In 2022, Alameda assets declined by around 80% in market value due to a series of sizeable broad market crashes. In addition, the fund failed to sufficiently hedge its market exposure, significantly contributing to financial losses. This was a devastating blow to the platform, but it wasn’t the only factor that led to its downfall.

Finally, Bankman-Fried blames the Binance CEO as the perpetrator of an extreme, quick, targeted crash, which made Alameda insolvent. This crash resulted in significant losses for the platform and its customers. According to Bankman-Fried, this crash was the final nail in the coffin of the FX trading platform.

Recovery of Assets

The Federal Trade Commission’s attorney, Andrew Dietrich, announced yesterday that they had located over $5 billion in cash, liquid cryptocurrency, and liquid investment securities. However, this figure does not include the assets seized by the Bahamian authorities. The Bahamian authorities estimate that their seized assets are worth around $3.5 billion, while the FTC’s attorney says that number is closer to $170 million. Most of the assets held were FX’s own FTX token, the price of which has declined significantly since the bankruptcy.

Sale of Subsidiaries

The legal team for FX plans to sell non-strategic investments that once had a value of $4.6 billion. These investments include FTC’s Japan, FTC’s Europe, Ledger X, and Embed. A judge has given the green light for the sale of these four subsidiaries, but it is still unclear what percentage of the proceeds will be given to the 9 million customers who have lost money in the collapse.

Response from SBF

Sam Bankman-Fried, in his response, said that he is confident that the customers can be made whole and that the company is working towards a solution. He also stated that the assets seized by the Bahamian authorities are worth much more than the estimated $170 million and that the company plans to appeal the seizure in court.

The Main Story

The FX case is a shocking example of financial fraud and deception. Many customers are still wondering if they will ever see their money again. While $5 billion has been recovered, it is unclear how much will be returned to the customers. The sale of subsidiaries and the appeal of the Bahamian authorities’ seizure of assets may provide some answers, but it is still too early. It’s important to note that this is an ongoing case, and new information may come to light in the future.