Skip to main content
Find a Lawyer
Please enter a legal issue and/or a location
Begin typing to search, use arrow keys to navigate, use enter to select

Find a Lawyer

More Options

Will FTX Clients Get Their Money Back?

By Arin E. Berkson, J.D. | Last updated on

When the cryptocurrency exchange FTX secretly transferred $10 billion in client funds to its sister trading firm Alameda Research, FTX stopped being able to cover customer withdrawals. Soon after, both companies filed for bankruptcy protection. As the companies attempt to reorganize their business affairs in bankruptcy court, FTX's clients are asking, "Will I get my money back?" The short answer: Probably not.

The Long Answer

FTX estimates that the company may have more than 1 million creditors, whose ranks include everyday account holders who can't access their money due to the financial fiasco. While bankruptcy law provides a structure for orderly payment to creditors, it is uncertain at this stage how much money will be available to pay claims. So far, the company's new management has secured only $740 million in cryptocurrency and is continuing to search for more assets.

The bottom line: If FTX's assets are insufficient to cover all the claims against it, some creditors will not receive repayment. This means it is possible that account holders who lost money may not be made whole.

Some Creditors May Owe Money to the Bankruptcy Estate

In its search for assets, the new FTX management may try to recover funds from creditors who received more money from FTX before the bankruptcy filing than they would have received if paid through the bankruptcy proceeding. In order to prevent an unequal repayment to account holders, a bankruptcy judge could allow FTX to "claw back" money from clients who were able to make withdrawals leading up to the bankruptcy filing. FTX could then use these claw-backed funds to pay creditors a proportionate share of the available assets.

Are There Ways to Recover Funds Outside of Bankruptcy?

Some account holders who used their FTX accounts as an alternative to a conventional bank account or money transfer app might wonder if their funds were insured by the U.S. Government. Despite what FTX once implied, these account holders would not be due money from the government because FTX accounts were not insured by the Security Investor Protection Corporation (SIPC) or the Federal Deposit Insurance Corporation (FDIC).

One former FTX client has proposed a class action lawsuit against FTX, its ex-CEO Sam Bankman-Fried, and a slew of celebrities who promoted the company. The lawsuit seeks unspecified damages and alleges that FTX and its wide range of brand ambassadors — including Larry David, Naomi Osaka, the Golden State Warriors, Tom Brady, and Giselle Bündchen — defrauded consumers by unlawfully selling unregistered securities in violation of Florida and U.S. law. The success of this case is unknown, but any damages recovered from FTX would come out of the same pot used to pay creditors through the bankruptcy court.

If you are a creditor in the FTX bankruptcy case, it is important to carefully read any legal documents you receive about the case and to respond to them accordingly. If you have questions about your legal rights, an experienced bankruptcy lawyer may be able to help.

Was this helpful?

You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help

Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.

Or contact an attorney near you:
Copied to clipboard