FTX, SBF, and celebrity ambassadors face federal class action lawsuits in Miami
Yahoo Finance's Alexis Keenan discusses the first class action lawsuit in the wake of the FTX collapse, targeting the exchange, founder Sam Bankman-Fried, and celebrity ambassadors such as Steph Curry and Tom Brady.
Video Transcript
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AKIKO FUJITA: Well, the legal troubles for FTX are only just beginning now after the crypto exchange and former CEO Sam Bankman-Fried hit with a class-action lawsuit in Miami federal court. Alexis Keenan has the details for us. And Alexis, some big names included in this class-action lawsuit.
ALEXIS KEENAN: There sure are, Akiko. There are a lot of them. So let's go through it. The suit was filed seeking this class-action status on behalf of FTX customers versus this group of defendants, and I'll name just some of them. It's Sam Bankman-Fried along with Tom Brady, Giselle, Steph Curry, the Golden State Warriors, also Shaquille O'Neal as well as Kevin O'Leary, saying that those people were brand ambassadors, that the Golden State Warriors were a partner of FTX.
And this is coming from a 21-year-old plaintiff on behalf of this purported class, an Oklahoma resident. And his name is Edward Garrison. And he says that he sustained losses due to the FTX bankruptcy on an account that he held that was one of these FTX yield-bearing accounts. That's where customers put crypto assets on deposit with the platform, and they can gain interest from those accounts.
Now, it's a four-count complaint, and it alleges that these defendants violated Florida laws that prohibit the offering and sale of unregistered securities. The plaintiffs say that the defendants controlled, promoted, or even assisted FTX to offer and sell these yield-bearing accounts specifically. The case is similar to one from the same attorney that filed a case against the bankrupt crypto platform Voyager and Mark Cuban months ago.
But look, some of this in terms of any of the allegations that are against FTX and the entities, those would normally be stayed and paused and not be allowed to go forward while the bankruptcy proceeding is happening. That's part of the protection that FTX and its entities would get from chapter 11 filing. But as for the individual defendants, we'll see if this sustains a motion to dismiss that I would expect would be coming from these defendants. Akiko.
AKIKO FUJITA: There are so many questions, Alexis, around what a bankruptcy filing means in the crypto space and to what extent the users, the customers can actually recoup some of their funds. I mean, is there some clarity on that?
ALEXIS KEENAN: No. The answer is no. And any little bit of clarity has come from the cases, the bankruptcy cases that have already been filed before FTX. And those have come from CRED, the lending platform, also Voyager, and also Celsius, and those latter two not having seen their way through the bankruptcy court yet.
So these crypto bankruptcies, they're really cases of first impression for the bankruptcy court. And these minor precedents that have been set so far on the law of how to handle the customers assets mostly unsettled, and particularly the big question-- who owns the actual cryptocurrency once a platform or exchange has filed for bankruptcy? One court so far, in the case of CRED, ruled that because the customer agreement allowed for customers' crypto to be co-mingled with other customers assets, that therefore, those assets belong to the bankruptcy estate. And they would then be distributed as part of it.
But what's different about FTX is that its agreements were much more customer-friendly. Those agreements said that the platform would not be using lending, collateralizing these assets, that they would be kept set aside for the customers, in which case, if you go with the small precedent we have so far from the one bankruptcy court in CRED, that would mean that the customer's assets should never become part of the bankruptcy estate at all in return. But look, where these assets are are anybody's question right now. Getting a lot of tweets from Sam Bankman-Fried about what kind of assets the company still had on its books. But not looking great for customers, Akiko.
