Had Money in FTX? Is It Possible to Get Your Money Back? – The Motley Fool




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by Emma Newbery | Published on Nov. 21, 2022
Image source: Getty Images
The new CEO says substantial amounts of money may be missing or stolen.
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It has been a horrific few weeks for FTX customers. Many watched in horror as the platform they trusted rapidly unraveled, leaving customers helpless and unable to withdraw their funds. If, like me, you had assets on the exchange, the bad news is that you may not be able to get them back. Even if you can recover some of your funds, the process could take years.
For FTX and FTX.US customers who want to know if they might get their money back, the key questions are:
John J. Ray, the new CEO who has taken charge during the bankruptcy proceedings, set out some of the issues involved in a court filing late last week. Ray oversaw the Enron liquidation and replaced former founder and CEO Sam Bankman-Fried at FTX on Nov. 11. His initial findings give a glimpse into the challenges customers will face in recovering their funds.

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Here’s what we know so far.
It sounds unthinkable, but we don’t know the answer to this. The FTX records and financial statements are in such a mess that we don’t even have a ballpark figure. Ray’s initial court declaration says, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
The crucial information for customers here is that Ray says a “substantial portion” of the company’s assets “may be missing or stolen.” To summarize more of Ray’s initial findings:

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We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you’ve probably used this company’s technology in the past few days, even if you’ve never had an account or even heard of the company before. That’s how prevalent it’s become.
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In addition to figuring out what funds the FTX companies hold, Ray’s team will employ forensic investigators and cyber security experts to track down assets that were moved illegally and attempt to recover them. The more they can recover, the more money can be returned to FTX’s creditors.
Many cryptocurrency investors know that these are volatile assets that can fall dramatically in a short space of time. However, volatility is not the only risk involved. Crypto exchanges can and do fail, and there are not many safeguards in place when they do.
Money held in a traditional bank is protected for up to $250,000 per account by FDIC insurance, but those protections don’t exist on many crypto platforms. If you leave your assets on an exchange and don’t move them to an external crypto wallet, your digital assets can get tied up in bankruptcy proceedings in the event of platform failure. These are relatively uncharted waters, which is one of the reasons it’s hard to know exactly what will happen.
There is a small glimmer of hope for some FTX customers: FTX’s terms and conditions said that you, not FTX, remain the owner of any digital assets in your account. Other crypto platforms that declared bankruptcy earlier this year had not made these commitments, and their customers ended up being treated as unsecured creditors. Usually, secured creditors — a creditor whose loan is backed by some kind of collateral — get priority over unsecured creditors.
The wording of FTX’s terms and conditions mean some of its customers may be in a better position. On paper, those assets do not belong to FTX. As a result, there is a chance that FTX customer assets won’t get tied up in bankruptcy proceedings. According to Fortune, customers might be able to claim their funds before money goes to secured or unsecured creditors.
Be prepared for a lot of ifs and buts and legal wrangling. For starters, other creditors may try to convince the bankruptcy court that all the money, including customer funds, belonged to FTX. Plus, as one digital assets lawyer told Coindesk, if your funds were part of FTX’s yield-generating programs, you may still be treated as an unsecured creditor.
It doesn’t feel fair that the money or crypto you held on FTX might be used to pay other creditors — particularly since the FTX user agreement said otherwise. Unfortunately, what’s fair doesn’t necessarily apply to a company that appears to have been managing billions of dollars of people’s money with only limited oversight and control.
There are some steps you can take to recover your funds. The most important thing is to seek legal advice, particularly if you have lost large sums of money. Don’t assume that the user agreement will automatically protect you during any bankruptcy proceedings.
Pay attention to what is happening in the Delaware bankruptcy court and look for any opportunity to record your claim. Everybody’s case will be different, and I am not a lawyer. But you might be able to team up with other FTX customers to mount a joint claim. Follow social media and news reports closely, as the situation is unfolding and changing quickly.
Download as much information about your transactions and holdings as you can. The FTX and FTX.US websites are currently operational, though FTX has experienced outages and is running extremely slowly. If you can’t log on right now, keep trying. At some point, you may need to provide proof of the assets you held on the exchange. In many countries, you need to declare your crypto transactions on your tax return, including any money you lost in the FTX debacle.
If you had significant amounts of money on FTX, it could be extremely painful to consider that your money could be gone. I know it’s only a small condolence, but you are not alone. And while there are no easy answers, try to look for support from family, friends, or the online community as you find a way through what is an extremely difficult situation.
Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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