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FTX violated its own rules by using users’ money, lawyers say

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Key facts:
  • A lawyer says this is a “serious problem” for the stock exchange if embezzlement is confirmed.

  • Users’ funds cannot be used to cover a potential FTX bankruptcy, the lawyer clarifies.

If it is confirmed that Sam Bankman-Fried, the CEO of bitcoin (BTC) and cryptocurrency exchange FTX, used user money to make risky investments and support his sister company, Alameda Research, the entrepreneur could be prosecuted for misappropriation of funds.

According to lawyer Louise Abbott, a litigation specialist and member of the British law firm Keystone Law, the use of her clients’ investments to support Alameda involves “a serious problem” for Bankman’s firm, and could lead to claims “for fraudulent breach of trust,” reports CoinDesk.

As reported by CryptoNews, trading firm FTX Alameda Research, reported that it lost money and was funded by its parent company with funds taken from its users.as revealed Reuters. According to Reuters, FTX has earmarked $4 billion for its subsidiary, which was hit by the bear market that began more than 10 months ago.

If true, the executive would have violated FTX’s terms and policies, which state that no cryptocurrency within clients’ wallets are owned by the exchange, nor can they be lent to that entity. This means that the corporation is prohibited from using the funds for purposes other than custody.

Another lawyer, Matthew Nyman, who is with the law firm CMS, agreed with his colleague Abbott that FTX misappropriated funds.

He assured that if Bankman’s company did not keep its word and used user money to fund Alameda, “set themselves a higher standard,” which is “even worse.”In this jurist’s opinion.

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Taking into account that there already exists U.S. federal agencies that are conducting investigations Sam Bankman-Fried could face formal and even criminal charges if it is confirmed that he misappropriated his clients’ funds, a crime recognized under U.S. law.

Sam Bankman-Fried.
Sam Bankman-Fried allegedly used funds from FTX users to finance the company Alameda Research. Source: Wikipedia.

Are clients saved in bankruptcy?

According to attorney Nyman, the distinction in FTX’s terms of service will be relevant if the exchange ends up insolvent. This is possible by taking into account Binance’s withdrawal from the purchase agreement and the closure of Alameda’s operations.

Explains that users may be favored, as these policies state that investors’ funds do not belong to FTX, that the money could not be used to pay creditors and stakeholdersIf insolvency is declared.

But those who joined programs to earn returns on FTX may have a different fate. The lawyer argues that such funds could be frozen as the company’s own assets in the event of bankruptcy.

As reported a couple of days ago, FTX, once one of the most important exchanges in the Bitcoin ecosystem, has collapsed. This after its main competitor, Binance, liquidated FTT tokens (native to FTX) citing “disclosures.”

The disclosures involved the alleged use of such tokens as collateral for leveraged loans, as well as mismanagement of user funds, which led to a “severe liquidity crisis” in FTX, as Binance CEO Chanpeng Zhao put it. This prompted the Chinese entrepreneur to think. acquiring its rivalan idea that dismissed 24 hours later.

This situation negatively affected the bitcoin market. The first cryptocurrency faced prices yesterday that had not been seen for two yearsOf $15,800 on average. Although it has recovered to $17,300 at the time of writing, remains in a downward trend due to the uncertainty caused by the FTX controversy.

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So far, SBF has already admitted its responsibilitybut users’ money is still blocked. As we commented earlier, the FTX and Alameda websites are offline, which has caused a feeling of fear, uncertainty, and doubt among the millions of users of that exchange.

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