Not long after its launch back in 2019, FTX faced a crypto collapse initially due to not having sufficient assets in reserve to meet customer demand. Initially, it seemed to be an accounting problem at first.
Transforming from a well-respected exchange to a bankrupt company in just a few weeks back in November 2022, it turned out to be an alleged scam fabricated by the CEO of the exchange, Sam Bankman-Fried.
Despite the long time gap since its collapse, FTX continues to face legal challenges and troubles due to an orchestrated yearlong fraud that cost billions of dollars from customers such as their investors or bettors who use casino crypto funds for online gambling. FTX’s law firm Fenwick & West faces federal law enforcement subpoenas and class action lawsuits.
The law firm, despite being a reputable operation, will have to answer questions for its client FTX. On behalf of a proposed class of investors, Fenwick was the centre in aiding Bankman-Fried according to a lawsuit filed against the firm.
Although they are yet to file a response to the lawsuit against the firm, Fenwick is known to have helped FTX in its scheme that has led to the loss of customer funds in just a few weeks’ time.
Patrick Coughlin, a lawyer who represented shareholders of Enron following its collapse, states, ‘The biggest challenge here is demonstrating what a law firm knew or didn’t know and their participation in actual transactions’.
‘It’s going to be a lot harder to show that third parties—the accountants or the lawyers—were involved in the fraud’, he continued.
To further understand the case, here is an in-depth look into the crypto collapse of the exchange:
FTX’s crypto collapse: What you need to know
FTX suddenly experienced a significant collapse in the value of its leveraged tokens. In just a span of a few days, the exchange went from a respectable company to bankruptcy. Many of the coin’s investors experienced substantial losses which caused an uproar attracting the attention of many. This caused many to be cautious of the risks associated with trading on leveraged platforms.
When the value suddenly dropped, traders’ positions were instantly terminated to limit further losses, which led to a wave of forced liquidations. Significant losses were suffered by several traders, and some even had their whole accounts wiped out.
Sam Bankman-Fried, the CEO of FTX, acknowledged the problem and proposed to compensate traders for a percentage of their losses. He claims that the company was simply overleveraged and disorganised indicating that it was an accounting problem.
It was then found out that it was a case of misuse of customer funds. The whole FTX crypto collapse was allegedly an orchestrated plan to scam customers of their investments. With further investigation of the case, it was found out that these funds were sent to Alameda Research, a crypto trading firm FTX was close with. On an unprecedented scale, this appears to be theft at its finest.
This was a significant event in the world of casino crypto as it gives beginner or seasoned players a caution to always make in-depth research on a particular digital asset they want to use for betting. As FTX continues to pay for the crime it committed, traders will continue to be compensated over the years.
Tags: crypto casinos, cryptocurrency
