Billions of dollars in customer funds and investor valuations were wiped out when Sam Bankman-Fried’s crypto exchange, FTX, collapsed in November after it was revealed to be a massive fraud. A lot of that money isn’t coming back, like the funds SBF routed to his investment firm, Alameda Research, which were then wasted on bad bets. But there’s still a lot of cash out there waiting to be recovered.
As the alleged fraudster is extradited to the U.S. from the Bahamas to face charges, three concurrent fights are brewing over funds either controlled by FTX or invested by SBF. Below is a look at the battle for the money that wasn’t incinerated in FTX’s spontaneous combustion.
Customers will have to fight hard to get their money back.
In one of its first court filings since declaring bankruptcy, FTX acknowledged that it had as many as 1 million creditors, with losses north of $8 billion. Some of the more desperate of that group — small investors who say their life savings was lost through no fault of their own — have set up GoFundMe pages to recoup their losses.
The most likely route for FTX customers to get their cash back is through the bankruptcy process, in which a judge will determine how much will be given out during restructuring. This process will see FTX liquidated, with experts determining how to hand out the remaining funds after bankruptcy costs. It is expected to take years, and individual account owners will be paid out last. “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,” St. John’s University law professor Anthony Sabino told CBS News. “It does not look good at all.” One crypto-risk expert estimates the process could take a decade.
At least there was one small upside for FTX customers this week: On Monday, the exchange announced it was willing to return funds and allow victims to contact them to begin the long process. Customers also have the government on their side: On Tuesday, the U.S. Attorney for the Southern District of New York, Damian Williams, called on “any person, entity, or political campaign that has received stolen customer money” to “work with us to return that money to innocent victims.”
FTX wants whatever is left of Bankman-Fried’s donations.
John J. Ray III, the new CEO of FTX in bankruptcy who previously oversaw Enron’s restructuring, wants the money back that SBF had handed out to politicians and nonprofits. In the same statement on Monday announcing FTX’s willingness to eventually give funds back to customers, the company said it had contacted recipients of his donations to secure the “prompt return” of the money. Last week, the Securities and Exchange Commission accused SBF of diverting customer funds for his own use, including political donations.
“To the extent such payments are not returned voluntarily, the FTX debtors intend to commence actions before the bankruptcy court to require the return of such payments, with interest accruing from the date any action is commenced,” the statement read.
There’s a lot to claw back. In the 2022 midterm cycle, SBF donated close to $39 million to politicians and associated political action committees. While he largely handed out cash to Democratic politicians, FTX executive Ryan Salame gave more than $20 million to mostly Republican causes.
One major issue FTX will run into is the reality that the recipients of SBF’s false largesse might have already spent the money. Protect Our Future, SBF’s own political action committee dedicated to pandemic prevention, received $27 million from him. If the company’s liquidators want to get that money back, they’ll have to find it first: After spending heavily on the midterms, Protect Our Future has just $384,588 in the bank. The same goes for American Dream Federal Action, a PAC supporting Republican lawmakers funded almost entirely by FTX executive Salame, who gave $15 million to the cause. After the midterms, it has only $280,623 left.
And some recipients are literally giving it away.
Wanting to avoid the ugliness of the most infamous alleged fraud in over a decade, many donation recipients are getting rid of SBF’s money. Democrats including Hakeem Jeffries, Beto O’Rourke, Maxwell Frost, Kirsten Gillibrand, and the Democratic National Committee have returned or re-donated millions from his contributions. In 2020, SBF also donated $50,000 to the Biden Victory Fund, a joint committee organized by the president’s campaign and the Democratic National Committee. To date, the White House has not stated if these entities will return the funds SBF contributed.
SBF also donated widely to media outlets — including Vox, New York’s parent company, which received a $200,000 grant from a Bankman-Fried family foundation for a reporting project. On Wednesday, the Washington Post reported that Vox will be returning the money, aside from $14,000 already spent on a project on climate change. ProPublica also announced this week that it would return $1.6 million it received from the family foundation.
