FTX – Declared bankruptcy, class action possible
publication date: December 5, 2022
FTX Crypto Exchange
It is one of the largest cryptocurrency exchanges in the world. In January 2022, it was valued at $32 billion. However, in a fairly short time, it significantly lost its value. What were the reasons for this?
It all started with the information published on November 2, 2022 by CoinDesk
(link to the article: https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance -sheet/ ). It was revealed in the content of this article that Alameda Research (another company founded by the founder of FTX) is heavily dependent on FTT – a token issued by this exchange. In view of this balance sheet, it was realized that it was not as expected. Previously, FTX was presented as a professional, very advanced and successful operation. After this article, this opinion turned the other way to the disadvantage of this exchange and its management.
After the publication of the report, the Binance cryptocurrency exchange announced the liquidation of its FTT holding. This started a downward spiral with FTT and other cryptocurrencies as investors started withdrawing their money.
Binance agreed to take over FTX on November 8, 2022 but withdrew its offer a day later. It was announced that the reason for such a decision was press reports about mismanaged client funds and allegations of the US intelligence agency.
November 10, 2022 The Wall Street The Journal reported that FTX lent billions of dollars of customer-owned assets to Alameda to help finance risky bets.
The founder of FTX on the same day announced the suspension of all withdrawals to customers from Monday, November 7, 2022.
Accordingly, on November 11, 2022 FTX declared bankruptcy and FTX founder Sam Bankman-Fried resigned.
Reuters reports that FTX is missing at least $1 billion in customer funds:
(link to article: https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/ ) .
Whereas The Wall Street Journal reported that the Securities and Exchange Commission (SEC) and the U.S. Department of Justice are investigating the FTX exchange.
(link to the article: https://www.wsj.com/articles/sec-investigates-crypto-platform-ftx-11668020379 ).
The authorities of the Bahamas, the country where FTX is based, are also investigating FTX’s activities:
(link: https://www.facebook.com/photo/?fbid=520556993433166&set=a.374349234720610 ).
Currently, the exchange website displays a message about suspending all withdrawals and strongly advising against deposits.
Class action lawsuit
In this whole situation, it is important to remember the huge number of people who have invested their money in the FTX cryptocurrency. One of the possible legal solutions is to file a class action.
What is a Class Action under Polish law?
This issue is regulated by the Act of 17 December 2009 on pursuing claims in group proceedings.
This is a lawsuit filed when claims pursued by at least 10 people are of the same type based on the same or the alike factual basis.
The amount of this individual claim varies. The main thing is that the grounds for these claims are the same. Pursuant to the Act, the amounts of these claims should be unified at least in groups of at least 2 people.
The incentive to jointly defend interests in a group action is primarily the “cheapness” of the proceedings due to the lower court fee of 2% of the value of the dispute and the proportionate distribution of costs by the number of people in the group, as well as joint evidence proceedings.
Such a case is dealt with by a panel of as many as three professional judges of the regional court, which shows the seriousness of such a case.
An action in such a case is brought by a representative of the group, who conducts the proceedings on his own behalf in the interest of the entire group.
Each member of the group is obliged to draw up a statement on joining the group, in which he defines his demands and the circumstances justifying them, belonging to the group, and also presents evidence. The list of persons who have joined the group is drawn up by the plaintiff and presented to the court, along with a declaration of joining the group. Upon presentation to the court of a declaration of joining a group, a pending case arises between a group member and the defendant with respect to the claim covered by group proceedings.
At the request of more than half of the members of the group, the court may change the representative of the group. The application should indicate the proposed representative of the group and contain his declaration of consent to be the representative.
The equivalent of a class action lawsuit in US law is class-action lawsuit.
This is a type of lawsuit regulated by the Federal Rules of Civil procedure. Cases in federal courts can only be considered as class actions if the court has jurisdiction to hear the case and if the case meets certain criteria.
Also in this procedure there is a representative of the group as the “main plaintiff” (the class representative). Such a person must be approved by the court in order to proceed as a class action.
Typically, such lawsuits are filed primarily in state courts and not federal courts. However, the defendant has the option to change to a federal court.
For a case to be considered as a class action and to bind legally absent group members, the court must approve the resulting group under Rule 23 at the request of a party wishing to proceed as a class action.
The criteria of size, commonality, typicality and adequacy are important for the group.
The size refers to the number of people in the class. A group must have enough members to be approved by the court.
What is important for the commonality criterion is a common question of law and fact, such that establishing its truth or falsity will solve in one fell swoop an issue that is central to the validity of each claim.
The requirement of typicality ensures that the claims or defenses of a named claimant are typical of all others in the group, adequacy requirement states that the claimant must fairly and adequately represent the interests of the absent group members.
KIELTYKA GLADKOWSKI law firm provides assistance in joining already initiated class actions, represents the interests of its clients, and oversees the proper course of group proceedings.
