Investors affected by the shocking collapse of cryptocurrency exchange FTX are being advised to speak with specialist lawyers.
The three-year-old exchange, founded by Sam Bankman-Fried, disintegrated in matter of days this week. Trouble began when Binance chief Changpeng ‘CZ’ Zhao engaged in a Twitter spat with the FTX CEO over regulation.
By Tuesday, Zhao had ordered the liquidation of almost $600 million of FTX tokens before sensationally agreeing to buy FTX, subject to due diligence processes. By this point, rumours of insolvency surrounding SBF’s trading company Alameda Research were rife.
Within 24 hours the deal was off the table after CZ suddenly pulled out of the deal to buy up the beleaguered exchange.
The fallout from what has now become an epic financial scandal has hit many businesses and affected millions of people. Some 134 entities were listed in a file for bankruptcy submitted by FTX yesterday – a file made as Sam Bankman-Fried resigned his position as CEO. The 30-year-old Californian resigned barely a day after issuing a gushing and rambling apology as he pledged to fix the unfolding carnage.
Legal teams within FTX and also external bodies have spent the last few days attempting to calculate just how much damage the fall of FTX has caused, and how far it has reached. Specialist lawyers are now scrambling to offer support to investors caught up in the crypto storm.
Lawyers like Louise Abbott from Chancery Lane-based Keystone Law are advising investors to act quickly in engaging legal assistance – particularly as the terms of service currently on FTX’s website state that with regards to FTX Trading Ltd, any dispute will be governed by English Law.
“It is not yet clear whether these terms of service apply to customers who have lost their money, and a full review on a case-by-case basis will need to be undertaken to determine whether these terms of service bite in any particular case, but it is likely to have a significant impact,” explained the cryptocurrency and asset recovery partner.
“Immediately after a liquidator is appointed, the powers of the company’s directors cease, and the liquidator takes control of the company’s assets. Ordinarily, the unsecured creditors cannot take legal action against a bankrupt, or a company once a liquidator has been appointed under the Insolvency Rules.
“In this case, lawyers will need to carefully consider the Insolvency Rules and binding Terms of Service to determine whether claims over recovery of client funds fall outside the control of the liquidator (if those client funds are not company assets).”