FTX’s Former Customers Face ‘Nightmare’ Recovery Process

Nearly a year after FTX’s collapse, the cryptocurrency exchange’s customers are still hurting.

Some have formed support groups. Others, per a report Thursday (Oct. 5) by Reuters, have been victimized twice: once by accused fraudster/company founder Sam Bankman-Fried, and again by scammers who told them they could recover their funds.

And some still believe in the promise of crypto.

“As the crypto market has recovered, many FTX customers are concluding that they can sell their claim, buy crypto again, and do much better than letting their claim depreciate,” Matthew Sedigh, CEO of Xclaim, a bankruptcy claims exchange, told Reuters.

His company estimates that there is between $30 billion to $35 billion in crypto tied up in crypto bankruptcy cases. Xclaim says there was around $16 billion in crypto stuck in FTX when it imploded in November of last year.

FTX customer Lee Rees told Reuters submitted his claim via a website created by FTX’s bankruptcy administrators, calling the process a “nightmare.”

“All these terms were so complicated. You need a lawyer to understand it. … We don’t know if we’re getting our money back or not,” says Rees, who lost roughly $100,000.

FTX’s customers are among the witnesses being called by prosecutors in Bankman-Fried’s fraud trial, underway this week in New York City.

As PYMNTS reported, court filing say these customers will testify that when they deposited funds with FTX, it was with the “understanding that FTX would custody their assets separate from those of the company, would not transfer customer assets to Alameda Research, and would not use their assets for FTX’s or Alameda’s own expenses.”

Alameda Research was FTX’s sister company. Its CEO, Caroline Ellison, entered a guilty plea last year to conspiring to use billions of dollars from FTX customers to cover loans that Alameda had taken out to make risky investments.

Bankman-Fried, 31, has maintained his innocence and in the past seemingly tried to deflect blame onto Ellison, a one-time friend and romantic partner. Prosecutor Nathan Rehn painted a different picture in his opening statement at trial.

“The defendant took billions of dollars in FTX customer deposits from Alameda bank accounts and he spent it — and the customers had no way to know that their money was being used in this way,” Rehn said. “When customers thought their money was going into the exchange, they were actually sending their money right into the defendant’s pocket.”