Entwistle & Cappucci LLP Files a Class Action Adversary Proceeding Against FTX Entities that Misused Customer Property

December 29, 2022

Entwistle & Cappucci LLP (“Entwistle & Cappucci”) today announced that it has filed a class action adversary complaint against the FTX Group, its senior executives and affiliates seeking, among other things, a declaratory judgment that (i) customer property held in accounts at “FTX US” (the FTX Group’s exchange for U.S. customers) or “FTX Trading” (the exchange for non-U.S. customers, also known as FTX.com) is not property of the FTX entities bankrupt estates, and  (ii) customer funds held or recovered by these entities should be returned to customer victims.

The adversary complaint against FTX US Trading, Inc., West Realm Shires Inc., West Realm Shires Services Inc. (d/b/a FTX US), Alameda Research LLC (“Alameda”) (collectively, “FTX” or the “FTX Debtors”), as well as certain founders and former senior management, is brought on behalf of all FTX customers that have been unable to withdraw, access or use their funds and digital assets held at FTX  (the “Customer Class”).

The action arises because the closely-knit group of young executives (the “FTX Executive Defendants”) who operated FTX, the second largest “cryptocurrency” electronic trading exchange, totally abdicated or ignored their duty to put in place adequate controls to protect customer property.  The FTX Executive Defendants – who insiders at the FTX Debtors confirm controlled, and were the only individuals with access and authority to transfer, customer property – intentionally used customer property to fund: (i) obligations and losses from risky strategies employed by Alameda, their entwined cryptocurrency trading firm; (ii) acquisitions and investments by FTX and Alameda to grow their personal cryptocurrency fiefdom; and (ii) their lavish lifestyles, including through more than $1.7 billion in loans from Alameda that were never repaid.

Because of the Defendants’ breaches of customer agreements, fiduciary duties and duties of care, billions of dollars in assets that were contractually required to be held safely in customer accounts were commingled with firm assets.  Even worse, according to widespread reports, up to $2 billion in customer property is missing.

By filing this action, Entwistle & Cappucci intends to protect assets belonging to the Customer Class from becoming part of the bankruptcy estates or, in the alternative, fight for customers to have priority payment of their property.  A copy of the complaint may be found here.

If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact:  Robert N. Cappucci, Esq. of Entwistle & Cappucci at (212) 894-7200 or [email protected], or Joshua Porter, Esq. at (212) 894-7200 or [email protected].