The rise of FTX and Sam Bankman-Fried to crypto stardom and riches was quick. It was founded in May of 2019 and became the third biggest crypto exchange by 2022. Crypto winter exposed the weak underbelly of mismanagement and fraudulent operations in 2022, and the company declared bankruptcy in November of 2022, three years and six months after its founding. Bankman-Fried has gone to prison but the FTX fallout continues. It may be years before all of the broken pieces have been dealt with and all of those bearing culpability for it sins have each paid a price.
Paying Back FTX Creditors with Yachts and More
According to Bloomberg, the former Alameda co-CEO, Sam Trabucco, is handing over yachts, apartments in San Francisco, and more to satisfy FTX creditors. Although Trabucco is one of the folks responsible for the FTX mess, he is also one of the creditors with a claim of about $70,000,000 against the exchange. As part of his settlement Trabucco is also signing over all of his rights to his claim of $70,000,000 against his old company.
Who Else Is Paying for Their Activities at FTX?
While Bankman-Fried is serving a 25-year sentence and Trabucco is handing over properties and claims against FTX, the other co-CEO, Caroline Ellison is serving a two-year sentence and has forfeited over $11,000,000,000 in crypto assets. Her sentence was shorter than Bankman-Fried’s not because her guilt was so much less but because she reached a deal with the prosecution and testified against her former boss! While Ellison is going leave prison long before Bankman-Fried, her obligations to FTX creditors will be such that if she begins to accumulate any significant wealth she will have to pay more to creditors. How that might work once her prison sentence, and any parole are done is unclear.
When Will FTX Creditors Get Their Money?
As bankruptcy proceedings draw to a conclusion, creditors who are owed less than $50,000 will get 118% of what they would have been owed in November of 2022 or more. Anyone who was owed more than $50,000 will have to wait until sometime in 2025 or even later. Since about 98% of FTX creditors fall into the less-than-$50,000 category this is a good result for the vast majority of folks hurt by FTX.
Long Term FTX Fallout
With the post-election Bitcoin surge and concomitant rally of many altcoins, one might expect that crypto is back to its glory days. Now we even have Bitcoin and Ether spot price ETFs with other crypto ETFs on the way. However, investors have long memories. The old expression, “once bitten, twice shy,” will apply to many who not only watched their crypto assets evaporate during crypto winter but also came to realize the degree of mismanagement, outright stupidity, and fraud that permeated crypto in its 2021 to 2022 heyday. No matter how much hype gets thrown into the mix it will be very difficult to convince serious investors that crypto is utterly risk free. This issue will be even worse if the Trump administration ends up gutting the reasonable guardrails that have been put in place under the Biden administration.
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