In a shocking turn of events, the legal proceedings related to the defunct cryptocurrency exchange FTX have brought to light the fact that the exchange allegedly used customer funds to repurchase its stake held by Binance. This has raised serious questions about the security of customer deposits in the crypto industry.
At a court hearing, it was revealed that FTX had employed customer deposits to repurchase its shares from Binance. Changpeng Zhao, the CEO of Binance, acknowledged in November 2022 that his company had received over $2.1 billion in BUSD and FTT stablecoins as part of the transaction.
The US Department of Justice has hired an accounting professor from the University of Notre Dame, Peter Easton, to investigate the flow of billions of dollars between Alameda, the parent company of FTX, and the exchange. Professor Easton confirmed that customer deposits had been diverted for various purposes, including reinvestment in businesses and real estate, political contributions, and charitable donations. Most notably, it was found that over a billion dollars for the share repurchase had come directly from customer funds held by FTX.
Faced with the controversy surrounding the use of customer funds, FTX’s estate has proposed a settlement plan to address the loss of customer assets when the exchange declared bankruptcy in November 2022. The plan aims to provide a 90% return of assets to affected customers. This could potentially provide relief to those who suffered losses during the exchange’s collapse.
The legal and regulatory proceedings will be crucial in determining the fate of this proposed recovery plan and the eventual distribution of customer assets. The outcome of this case will be key in determining the future of the crypto industry and the protection of customer assets.
