MDL Sought for Cryptocurrency Lawsuits Over FTX Collapse
A group of plaintiffs have filed a request to centralize all federal lawsuits over the collapse of the FTX cryptocurrency exchange before one U.S. District judge for coordinated pretrial proceedings.
The FTX cryptocurrency exchange, which was launched in May of 2019 by Sam Bankman-Fried and Gary Wang, quickly gained popularity, becoming the third largest crypto exchange by volume as of June 2021. FTX is alleged to have handsomely paid professional athletes such as Tom Brady, Steph Curry and others to promote the use of their mobile platform as the go-to crypto exchange.
However, after only three years, millions of cryptocurrency investors around the world using FTX exchanges fell victim to what is being considered the largest and most sophisticated Ponzi scheme ever seen, in which tens of billions of digital assets in currencies such as Bitcoin, Ethereum and others vanished, virtually overnight.
FTX Cryptocurrency Lawsuits
In early November 2022, concerns arose over FTX’s financial stability, causing many investors to rush to withdraw their funds. The rampant withdraws created a liquidity crisis for the company, prompting the exchange to halt withdrawals and ultimately file an emergency Chapter 11 bankruptcy petition in Delaware on November 11, 2022.
Its founder, Sam Bankman-Fried, an outspoken cryptocurrency advocate, resigned shortly after. However, evidence arose soon after that Bankman-Fried had been freely transferring FTX investors’ money into his Alameda Research investment firm to use for trading, which lost massive amounts of money on risky investments. FTX’s fraudulent use of customer funds is illegal, and Bankman-Fried has since been arrested and faces numerous criminal charges.
The events and actions by the exchange have now left upward of five million investors stranded and without access to their digital assets, which could be tied up in a lengthy bankruptcy process. To further complicate matters, the day after FTX filed for bankruptcy, the company claimed it had been hacked, resulting in the loss of $400 million, which has raised additional questions in several of the lawsuits over who could have abused the client funds.
Investors have been filing FTX class action lawsuits, claiming the FTX entities shuffled customer funds amongst their affiliated entities to pay other debts in an attempt to maintain the appearance of liquidity.
Given common questions of fact and law raised in complaints currently pending in U.S. District Courts nationwide, several plaintiffs filed a motion to transfer (PDF) with the U.S. Judicial Panel on Multidistrict Litigation (JPML) last month, requesting the growing number of FTX crypto loss lawsuits be centralized before one judge for coordinated pretrial proceedings, as each of the cases involve parties who claim the now bankrupt cryptocurrency exchanges stole their digital assets and blocked them from making withdrawals.
Plaintiffs say an increasing number of lawsuits are being filed in district courts nationwide, and have called for the complaints to be consolidated in the Southern District of Florida.
As the cryptocurrency exchange lawsuits continue to be filed by investors who have suffered losses, the JPML now must consider whether the claims merit centralization to be consolidated for pretrial proceedings. It is expected that the panel will hear oral arguments in the coming months to determine whether to consolidate the cases.
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