According to legal experts, the answer could be zero.
Before its dissolution, FTX marketed itself as a safe haven for beginners to buy and sell cryptocurrencies.
But a liquidity crunch last week forced FTX to halt withdrawals, leaving customers and investors in limbo.
According to the Wall Street Journal, FTX allegedly used client money without permission to prop up its sister hedge fund’s high-risk trading operations.
FTX and hedge fund Alameda Research filed for bankruptcy on Friday.
Federal prosecutors in New York are now investigating the stock market collapse, a person familiar with the matter told CNN.
And authorities in the Bahamas, where FTX is based, launched a criminal investigation into the company over the weekend.
The legal ramifications for FTX and its founder Sam Bankman-Fried remain unclear.
But as the stock market, once valued at more than $44 billion, collapses, it’s looking increasingly likely that customers who have deposited their funds into FTX could hold the bag in hand.
“We just don’t know the extent of the contagion,” said Howard Fischer, a partner at the law firm Moses Singer and a former attorney for the Securities and Exchange Commission.
“The first ring of victims are the people who have held assets in FTX… They probably won’t be made complete or even close.”
There are a few reasons for this.
But there is simply no mechanism for deposit insurance in the largely unregulated world of cryptocurrencies.
In theory, FTX’s clients should receive a share of the company’s assets at the end of the bankruptcy proceedings.
But at least it’s not yet clear how much remains to be paid out.
“As far as I know, they have two assets – the goodwill value of the exchange and the value of their FTT coins,” said Eric Snyder, head of the bankruptcy practice at law firm Wilk Auslander.
Goodwill value relates to intangible assets such as brand reputation and intellectual property.
And FTT coins, the crypto tokens issued by FTX, have lost more than 90 percent of their value over the past week.
In bankruptcies, Snyder explains, there’s a pretty simple formula to figure out how much creditors — in this case, FTX depositors — will get.
“The numerator is wealth, the denominator is liability. You divide one into the other and that [result] is what everyone gets,” he said.
“But if people subtract all the assets, there won’t be a big meter.”
He added: “It is very conceivable that the return will be minimal at best.”
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Of course, the suddenness of FTX’s demise makes it difficult to judge early on, lawyers say.
Typically, companies would have weeks to prepare bankruptcy filings, which include, among other things, an explanation of why the company sought Chapter 11 protection and what it hopes to achieve in the bankruptcy court.
Dan Besikof, a partner specializing in bankruptcy at Logan & Loeb LLP, says it’s too early to tell if clients will get any money back.
“All you can really do is guess where things are from tweets,” he said.
“And how customers get their money back can depend on a lot of different things, including the setup they’re holding the money through, what amount of the coin is left.”
The FTX fallout has rocked the entire crypto industry, raising serious questions about the future of digital assets and the lack of global regulation.
On Monday, Changpeng Zhao, the CEO of FTX competitor Binance, tried to convince his audience of the legitimacy of the sector.
“It’s obvious that people are nervous,” Zhao, commonly known as CZ, said in a Twitter Q&A.
“I would like to say that it is painful in the short term. But I think this is good for the industry in the long run.”
The giant crypto exchange briefly emerged as a lifeline for FTX before reversing course last week before withdrawing its bid.
Zhao, whose tweet announcing Binance’s divestment into FTX helped fuel the smaller company’s liquidity crisis, has denied having a “master plan” to uncover FTX.
Still, critics note that the biggest, and perhaps only, winner of FTX’s demise is none other than Zhao, who is undoubtedly the richest and most influential player in digital asset trading today.
“As much as some people blame me for whistleblowing or poking the bladder, I apologize for that… I apologize for any turmoil I’ve caused. But I think if there’s a problem, the sooner we disclose it, it’s always better.”
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