Following the collapse of FTX, the cryptocurrency exchange once valued at $32 billion, much of the attention has focused on the now-bankrupt firm’s most prominent investors and celebrity backers.
But with more than 1 million creditors, many young people and mom-and-pop investors will be left holding the bag.
A bankruptcy court hearing scheduled for Friday at 1[ads1]0 a.m. EST could shed more light on the full spectrum of those who lost money due to FTX’s implosion. The hearing will consider a proposal to release a full list of FTX’s creditors, including their names and email addresses.
Former Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair recently told Fox Business that the real tragedy of the FTX collapse is that there are “potentially a million much smaller investors, and proportionally, those are the ones who are really going to be hurt.” “
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Noting that FTX and the crypto industry at large have marketed heavily to young people, Bair said it “sads” her that so many who bought into the company’s lure are unlikely to recoup their investment.
She suggested that to prevent a similar future collapse, crypto exchanges should be required to show proof of reserves and that some supervisory enforcement should be put in place.
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Current FTX CEO John J. Ray III, a corporate restructuring expert who handled the bankruptcy of energy trader Enron, testified before the House Financial Services Committee on Tuesday and indicated that customers who put their money in FTX and its affiliates should not hope for a full recovery of their investments .
“We’ll never get all these assets back,” Ray said bluntly.
In its initial filings in the early stages of bankruptcy proceedings, FTX indicated that it owed its 50 largest unsecured creditors more than $3 billion. At the time, the firm could identify 100,000 creditors that it was aware of, most of whom were customers of FTX.
But because the bankruptcy of FTX and its more than 130 affiliated entities could also affect former customers and others, the total number of creditors could eventually exceed 1 million.
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FTX founder and former CEO Sam Bankman-Fried was arrested by authorities in the Bahamas on Monday and is expected to be extradited at a later date.
Federal prosecutors announced Tuesday that Bankman-Fried was indicted on eight charges in the United States that carry a combined maximum sentence of 115 years in prison. The charges against him include wire fraud on customers, plus a related conspiracy charge; wire fraud on lenders, plus a conspiracy charge; conspiracies to commit commodity fraud, securities fraud, money laundering and campaign finance law violations.
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U.S. Attorney for the Southern District of New York Damian Williams said the Bankman-Fried case, which has drawn comparisons to Bernie Madoff’s Ponzi scheme and the Enron scandalwill go down as “one of the greatest frauds in American history.”
Fox Business’ Breck Dumas contributed to this story.