Third parties could return FTX funds directly to clients: law firm
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More than a million creditors of the failed crypto exchange FTX have been waiting to be recovered since the company filed for bankruptcy on Nov. 11, but recipients of donations and contributions may have a legal remedy to repay the funds directly to investors and customers, according to an expert .
Louise Abbott, a partner at UK-based firm Keystone Law, told Cointelegraph that it was “extremely unlikely” that FTX would have any legal footing in its demands for the voluntary return of donations, grants and other political campaign contributions prior to its bankruptcy made. However, many individuals and organizations – likely the result of public scrutiny – have already returned or pledged to return an estimated $6.6 million to FTX, a fraction of the millions the company sent in less turbulent times.
“Legally, investors’ claims are against the FTX trading entity and/or those responsible for the fraud,” Abbott said. “It generally does not extend to claims against those who donated funds unless it can be shown by some means that they were involved in the fraud, which is doubtful.”
Among the unreturned funds was a reported $5.2 million from US President Joe Biden’s 2020 presidential campaign, although many lawmakers have said they have already returned contributions to FTX amid the company’s collapse. According to Abbott, these refunds were less about responding to potential legal action and more about companies and individuals wanting to distance themselves from the scandal and “want to be shown they’re doing the right thing.”
The majority of the contributions are made outside of FTX’s bankruptcy proceedings, which are currently in the early stages and are not guaranteed to make all investors or users complete. Although former CEO Sam Bankman-Fried did recommended On more than one occasion when he has planned to “do the right thing for customers,” he essentially plays no role in bankruptcy courts, instead facing indictments from the U.S. Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission confronted.
Gurbir Grewal: We commend our law enforcement partners for securing the arrest of Sam Bankman-Fried on federal criminal charges. The SEC has approved separate indictments for his securities law violations, which are scheduled to be publicly filed in SDNY tomorrow. https://t.co/ON0LgY4mf4
— U.S. Securities and Exchange Commission (@SECGov) December 13, 2022
Abbott said it’s possible third parties who received FTX donations could be forced to return them directly to users, as investigations found the company was using client assets to fund investments through Alameda Research — a likely violation of the Platform Terms and Conditions. According to the legal expert, users could then claim in court that assets “remained their property at all times” and could be treated separately from bankruptcy proceedings:
“Such assets falling under these conditions are not assets belonging to the company and therefore the liquidator has no legal right to assemble them as company assets. These are assets that belong to the respective investors.”
Relative: “You can commit fraud in shorts and t-shirts in the sun,” says SDNY attorney on the SBF indictment
Bankman-Fried was transferred to US custody by authorities in the Bahamas on December 21 after being detained in the island nation since December 12. Caroline Ellison, CEO of Alameda Research, and Gary Wang, co-founder of FTX, have also faced similar charges for defrauding investors, but Ellison has a deal with the US Attorney’s Office for the Southern District of New York in exchange for full disclosure certain information and documents, possibly to strengthen the case against Bankman-Fried.
