FTX’s Smallest Investors Could Be the Biggest Losers in the Crypto Crash

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Crypto and Web3 have unrealized potential, but lack of regulation over the years has led to speculative bubbles and Ponzi schemes, says Joe Lonsdale.

Following the collapse of FTX, the once $32 billion cryptocurrency exchange, much of the attention has focused on the company’s most famous investors and endorsers today in bankruptcy.

But with over a million creditors, many young people and mom-and-pop investors will end up with the bag.

A bankruptcy court hearing scheduled for Friday at 10 a.m. EST could shed more light on the full spectrum of those who lost money due to the FTX implosion. The hearing will consider a motion to release a full list of FTX’s creditors, including their names and email addresses.

Former Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair recently told Fox Business that the real tragedy of FTX’s collapse is that there are “potentially a million much smaller investors, and proportionally, they are the ones who are really going to be hurt”.

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The FTX logo is seen at the entrance to the FTX Arena in Miami on November 12, 2022. (REUTERS/Marco Bello/File Photo / Reuters Photos)

Bair noted that FTX and the crypto industry as a whole have done a lot of marketing to young people and said it “saddens” her that so many who bought into the company’s lure are unlikely to recover. not their investments.

She suggested that, to avoid a similar future meltdown, crypto exchanges should be required to show proof of reserves and that certain monitoring measures should be put in place.

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Current FTX CEO John J. Ray III, a corporate restructuring expert who handled the bankruptcy of energy trader Enron, testified before the House Financial Services Committee on Tuesday and said customers who invest their money in FTX and its affiliates should not expect full recovery of their investments.

“We will never get all of these assets back,” Ray said bluntly.

Samuel Bankman-Fried leaves court in Nassau, Bahamas on Tuesday. (Mega for Fox News Digital / Fox News)

In its first filings during the early stages of its bankruptcy proceedings, FTX said it owed its 50 largest unsecured creditors more than $3 billion. At that time, the company could identify 100,000 creditors it knew of, most of whom were FTX customers.

However, since the bankruptcy of FTX and its more than 130 affiliated entities may also affect former customers and others, the total number of creditors could ultimately exceed 1 million.

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Sam Bankman-Fried, founder and former CEO of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York on Aug. 17, 2022. (Jeenah Moon/Bloomberg via Getty Images/Getty Pictures)

FTX founder and former CEO Sam Bankman-Fried was arrested by authorities in the Bahamas on Monday and is expected to be extradited at a later date.

Federal prosecutors announced Tuesday that Bankman-Fried has been charged with eight counts in the United States that carry a combined maximum sentence of 115 years in prison. The charges against him include wire fraud on customers, as well as a related conspiracy charge; wire fraud on lenders, plus a charge of conspiracy; conspiracies to commit commodity fraud, securities fraud, money laundering and violate campaign finance laws.

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U.S. Attorney for the Southern District of New York Damian Williams said the Bankman-Fried case, which has drawn comparisons to Bernie Madoff’s Ponzi scheme and the Enron scandal, will go down as “one of the biggest frauds in American history”.

Fox Business’ Breck Dumas contributed to this story.

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