Will FTX investors get their money back? Here's if and how crypto traders can get their funds back from Sam Bankman-Fried and co
MANHATTAN, NEW YORK CITY: In a historic verdict, Sam Bankman-Fried, the infamous founder of crypto exchange FTX, has been convicted of seven counts of fraud in a scheme that helped him steal an estimated $10 billion from his customers.
A jury consisting of nine women and three men took nearly four hours of deliberation on Thursday, November 2 to reach their verdict of indicting the disgraced crypto mogul.
The 31-year-old Bankman-Fried now faces the prospect of spending 115 years in prison after being convicted of two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering.
He was also convicted of conspiracy to commit commodities fraud and conspiracy to commit securities fraud, which each carry a five-year maximum sentence.
The verdict came one year after FTX abruptly filed for bankruptcy, shocking the financial world and wiping off his estimated $26 billion personal wealth.
During the trial, prosecutors noted how Bankman-Fried allegedly stole billions from FTX investors and customers and used it to pay debts and expenses of Alameda Research, his privately held hedge fund.
He also used the money to purchase lavish real estate and make political donations to mainly Democrats but also some Republicans as he sought influence in Washington, prosecutors said.
How investors can get their money back from Sam Bankman-Fried?
Following Bankman-Fried’s conviction, many crypto traders, who deposited their savings on the platform, are concerned if they would ever get their money back.
Following a surge in client withdrawals, the once-heralded cryptocurrency exchange FTX filed for Chapter 11 bankruptcy on November 11, when Bankman-Fried also stepped down as CEO.
More than 130 companies connected to FTX and its sibling hedge fund Alameda Research were included in the bankruptcy petition.
As stated in the fillings, there are at least 100,000 creditors requesting payment, and the number might rise to over one million.
An expert stated that if the creditors can prove that their money was held independently from the company's pot of assets, then the money will be returned to them prior to the completion of the bankruptcy proceedings.
"The distinction is if you had loaned me your car for the week and I didn't give it back and I filed for bankruptcy, the car wouldn't be part of my bankruptcy estate. You would be able to get your car back from me,” G Ray Warner, a bankruptcy law professor at St John's University, told ABC News.
When a company goes bankrupt, the customers, who invested in the business, receive a notice from the bankruptcy court detailing the action. That notice includes instructions for filing a proof of claim.
A proof of claim is a statement in writing, together with supporting evidence, of why the company, filing for bankruptcy owes the customer money.
Customers need to submit the proof of claim document to the bankruptcy court where the bankruptcy was filed. To receive notice of bankruptcy and a proof of claim form, the business that is declaring bankruptcy must list the customer as a creditor.
How long will it take for crypto traders to get their money back?
It's unclear how long the bankruptcy procedure will take in total, but it may take years before cryptocurrency traders get their money back.
In the best-case scenario, consumers may start receiving their money back in six to nine months if it turns out that the US assets aren't missing and only belong to FTX US clients, says Howard Ehrenberg, a bankruptcy attorney at Greenspoon Marder, according to Barrons.
In more harrowing scenarios, the decision could drag out for a couple of years if customers see their funds back at all, he added.
“There will be a lot of effort to move this along but it’s still going to be tedious and time-consuming,” Ehrenberg said.