Following the collapse of FTX, a cryptocurrency exchange that was once valued at $32 billion, much attention has been focused on the now-bankrupt firm’s most prominent investors and celebrity backers.
But with more than a million lenders, many young people and mum and dad investors will be left in the lurch.
A bankruptcy court hearing scheduled for Friday at 10 a.m. ET could shed more light on the full spectrum of those who lost money in the FTKS crash. The hearing will consider a proposal to publish the full list of FTKS creditors, including their names and email addresses.
Former Federal Deposit Insurance Corporation (FDIC) Chairwoman 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 proportionately, they’re the ones who are really going to be hurt.” .
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Bair noted that FTX and the crypto industry as a whole have marketed heavily to young people and said she is “sad” that so many who bought into the company’s appeal are unlikely to recoup their investment.
She suggested that in order to prevent a similar collapse in the future, crypto exchanges should be required to show proof of reserves and some supervisory enforcement should be put in place.
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Current FTKS CEO John J. Ray III, a corporate restructuring expert who led the bankruptcy of energy trader Enron, testified Tuesday before the House Financial Services Committee and indicated that customers who invest their money in FTKS and its affiliates should not to hope for a full recovery of their investments.
“We’ll never get all this property back,” Ray said bluntly.
In its initial filings during the early stages of bankruptcy proceedings, FTKS said it owed its 50 largest unsecured creditors more than $3 billion. At the time, the firm could identify 100,000 creditors it was aware of, most of whom were FTKS customers.
However, since the bankruptcy of FTKS and its more than 130 related entities may affect former clients and others, the total number of creditors may eventually rise above 1 million.
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Authorities in the Bahamas arrested FTKS founder and former CEO Sam Bankman-Fried on Monday and are expected to be extradited later.
Federal prosecutors announced Tuesday that Bankman-Fried has been indicted on eight U.S. counts that carry a combined maximum sentence of 115 years in prison. The charges against him include defrauding customers, plus a related conspiracy charge; lender wire fraud, plus conspiracy charge; conspiracy 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 he compared to Bernie Madoff’s Ponzi scheme and the Enron scandalwill go down as “one of the biggest frauds in American history.”
Fox Business’ Breck Dumas contributed to this story.