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By Khristopher J. Brooks
November 14, 2022 / 5:40 PM / MoneyWatch
Customers of bankrupt cryptocurrency exchange FTX Trading could have to wait years to get their money back, while many may never recover the funds, experts said.
FTX’s creditors will be first in line to receive whatever assets a bankruptcy judge deems appropriate to distribute as the company seeks to restructure as part of its Chapter 11 filing. Investors in the Bahamas-based company, which had raised some $2 billion in venture capital, will be second in line. That leaves FTX account holders who used the platform to trade bitcoin, solana and other digital currencies at the back of the queue, a bankruptcy expert told CBS MoneyWatch.
St. John’s University law professor Anthony Sabino expects those customers to at best recoup only a portion of the money they originally deposited. As for the assets customers have on the platform now, they will probably diminish in value as the FTX bankruptcy process runs it course, he added.
“People are going to be waiting on the sidelines for a very long time, and only heaven knows what it’s going to be worth,” said Sabino, an expert on securities regulation. “It does not look good at all.”
The crypto world has been shaken by FTX’s bankruptcy and as it watched one of the largest exchanges crumble in about a week. FTX and its former CEO, Sam Bankman-Fried, are being investigated in the U.S. and abroad for possible securities violations.
FTX’s bankruptcy is unusual because the Securities and Exchange Commission and the Commodity Futures Trading Commission are probing the company as it goes through Chapter 11, Sabino said. The investigations won’t delay the bankruptcy proceedings, but a judge will pay close attention to what those agencies find, he said.
“I expect the FTX bankruptcy to take a decade or more for the process to sort out what assets remain and who owns them,” Joshua Peck, an expert on crypto risk, told CBS MoneyWatch.
At least $1 billion in customer funds are unaccounted for, according to Reuters.
FTX, which experienced a hacker attack over the weekend, did not respond to a request for comment.
Peck pointed to Japanese crypto exchange Mt. Gox, which was forced to file for bankruptcy after it was hacked in 2014, as example of how such cases can take to resolve in court. A bankruptcy trustee in Japan told former Mt. Gox users last month that they can now apply to get their funds reimbursed.
“The Mt. Gox bankruptcy is the precedent here,” Peck said. “That bankruptcy started in 2014 and is still ongoing.”
Problems facing FTX came to light last week when Bankman-Fried told a group of investors the company needed about $8 billion to back up its users’ crypto assets. The company experienced crypto’s version of a bank run earlier this month when users withdrew about $5 billion in a single day amid rising concerns about FTX’s solvency.
Rival company Binance was poised to save FTX, but CEO Changpeng Zhao walked away from a deal this week, citing FTX’s liquidity problems.
Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
First published on November 14, 2022 / 5:40 PM
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