Are you a victim of FTX? Better call the federal authorities.
Or, at the very least, go to the website they’ve established to spread details about their legal lawsuit against FTX founder Sam Bankman-Fried.
Federal prosecutors from the United States submitted paperwork in Manhattan on Friday requesting authorization to use a website to contact investors who lost money in FTX’s stunning collapse. It was accepted the same day by U.S. District Judge Lewis Kaplan, who is presiding over the case.
Users of its cryptocurrency exchanges, FTX and FTX US, are not listed among the more than 100,000 creditors listed in FTX’s bankruptcy filing from November 11, nonetheless. When users are counted, there are more than 1 million individuals. According to the prosecution, it would be “impractical” to contact each defendant individually.
Prosecutors should inform victims in criminal cases before the plea or sentence process and give them adequate time to offer testimony if they wish to be heard.
“Based on the number of victims who provide such notice, the court will rule on the manner in which victims will be heard at such proceedings,” Kaplan wrote in his court order.
At a hearing in December, John Ray, the current CEO of FTX, who is in charge of the company’s Chapter 11 reorganization, acknowledged that “a small number of US clients” were among the site’s users.
“We do know that there were 2.7 million users in the U.S. silo, which again is overstating the customer relationships because people had multiple trading accounts,” Ray said in his testimony. “In the [FTX.com] silo, we had over 7.6 million users—again, overstating the actual customer relationships due to the multitude of accounts by any particular customer. So we need to get to the bottom of those customer numbers. But it’s unlikely that many of them will be able to appear at the Manhattan court in person.”
In reality, according to CoinGecko’s monthly active user statistics examination, South Korea, Singapore, and Japan accounted for 16% of all traffic to FTX.com before it was shut down.
Customers from the United States made up 2% of all traffic despite the website configuring to automatically determine whether a visitor was in the United States and refer them to FTX US, the company’s U.S.-based affiliate.
To be clear, the criminal prosecution brought by the Department of Justice in the Southern District of New York against FTX founder Sam Bankman-Fried is entirely distinct from the bankruptcy processes that have been going on in Delaware since November.
Eight criminal charges, including wire fraud and conspiracy to conduct money laundering, were brought against Bankman-Fried by US authorities on December 9 (and the indictment was made public on December 13), one day after his detention in the Bahamas. He appeared in Manhattan on December 21 to enter a not-guilty plea to all of the criminal accusations he is up against after being extradited to the United States.
FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison were also accused by federal prosecutors, despite the fact that both have already entered guilty pleas and have cooperated with authorities in their case against Bankman-Fried.
There are indications that the millions of creditors and consumers in FTX’s bankruptcy case are growing impatient.
The Ad Hoc Committee of Creditors of FTX Trading opposed FTX’s request for extra time to put up a comprehensive assessment of its assets and obligations earlier this week. The committee was represented by the legal firm Venable.
On November 17, FTX requested a deadline extension, pushing the submission deadline out to January 23. Then, on December 21, FTX filed another document requesting a deadline extension until April 15.
However, the Ad Hoc group doesn’t think the additional time will matter.
“It does not appear that the Debtors will ever be able to reconcile their pre-petition books and records (or, more likely, create them in the first instance) and file accurate schedules and statements in these Chapter 11 cases,” attorney Daniel O’Brien wrote in the objection, “and they do not say as much in the motion, supplement, or any of the declarations. There is no reason to extend the deadline under these circumstances.”
The decision of which specific firm owes a claimant money will be decided later, he continued, because, in the Celsius bankruptcy case, the company regarded all account holder claims to be against all the debtor’s businesses in order to move forward.
O’Brien suggested that FTX’s bankruptcy procedures would benefit from a similar approach, as the firm “likely never will be able to produce proper Schedules and Statements under the circumstances,” he said.