Lawyers on FTX mess: retrieving investor funds might take many years

Insolvency lawyer warns of long delay in recovery of lost funds.
FTX filed for bankruptcy on November 11th.
Those who lost funds in the FTX collapse might not get all their money.

Recovery costs will be high in terms of time and dollars

Cross-border insolvency, lack of a comprehensive legal framework for digital assets and the jurisdictional competition among challenges that will cost time and money to retrieve investor funds from FTX.

On November 11, FTX, one of the largest cryptocurrency exchanges filed for bankruptcy in Delaware, USA. Sam Bankman Fried or SBF resigned as CEO shortly; John J Ray is the current CEO. It is estimated that over 1 million people lost their investments and savings when the exchange collapsed.

Stephen Earel, a lawyer with experience in insolvency cases remarked that the recovery of funds will be a “massive exercise” because of the realization of assets and the task of distributing funds. The lawyer warned that the entire exercise could potentially take years if not “decades.”

Bahamas, the US, the UAE…

Earel explained that competing jurisdictions and cross-border insolvency issues would cause the delay. Smaller investors will have to wait along with everyone else – investors, venture capitalists and creditors; those who traded in other crypto for FTT, might face the longest waiting period.

Recovering funds may take time and that would mean increasing legal and administrative fees. Essentially, people who lost money will get money out of whatever remains after bankruptcy costs are paid.

In an interview with a cryptocurrency media agency, Irina Heaver, a digital assets lawyer, noted that major complications might arise since UAE’s recently established Virtual Assets Regulatory Authority or VARA had granted FTX a license and maintained regulatory supervision; there is a case of regulatory failure.

Millions, not thousands affected by FTX collapse

John J Ray III has taken over the reins of FTX after SBF resigned. Ray expressed shock at the extent of mismanagement and unethical practices unearthed during the initial investigation of FTX’s books.

Latest court filings show that millions of creditors from over 100 companies have lost money, and not 100,000 approximately as per initial claims. And as per a wire agency, the exchange owes around $3.1 billion to the top 50 creditors.

FTX informed on Saturday that “it has launched a strategic review of its global assets and is preparing for the sale or reorganization of some businesses.” The first hearing will be conducted on Tuesday.

Faith in crypto seems to have taken a hit after FTX’s collapse. It is quintessential for lawmakers and regulatory authorities to hit the pedal on policy making and developing regulatory frameworks. It is disappointing to see time and money wasted in cases like SEC V Ripple labs while potential frauds like FTX go unnoticed.

The community wants accountability and action from those in power. Regulatory authorities are also answerable in the FTX collapse, and people like John Deaton are pointing that out.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing