FTX collapse to trigger legal battles in UK as it emerges some 80,000 British customers are nursing losses
The spectacular collapse of FTX could open the door to lawsuits in the UK after it emerged thousands of Britons lost money.
As the US crypto exchange’s founder Sam Bankman-Fried issued an apology in an email to staff, claiming he ‘did not realise the full extent’ of the mess his company was in, lawyers claimed the firm could face legal challenges on British shores as well as in the US.
FTX, which allows users to buy and sell digital ‘coins’ like bitcoin, imploded earlier this month – leaving around 80,000 UK customers out of pocket.
Regrets: FTX founder Sam Bankman-Fried (pictured with model Gisele Bundchen) issued an apology to staff claiming he ‘did not realise the full extent’ of the mess his company was in
Nicola McKinney, a partner at Quillon Law, who specialises in complex commercial and cross-border disputes, said: ‘There are numerous circumstances in which a claim that has foreign components or co-defendants could be started and pursued in the UK.’
A case could be brought in an English court if a breach of contract occurred in the country, or in a negligence case if the harm occurred in Britain, she explained.
McKinney said: ‘Such examples could provide ‘gateways’ for proceedings to be served on a foreign-based defendant, including potential FTX group companies, or individual wrong-doers.
‘In negligence claims in particular, the residence of the potential claimant is often connected with where the damage happened, and may potentially mean that litigation is brought here.’
The collapse of FTX has left an estimated 1m creditors facing losses of billions of pounds – with its 50 biggest customers owed more than £52million on average – and sent shivers through the crypto world. Some 8pc of users were based in the UK, suggesting 80,000 Brits have lost out.
FTX, Bankman-Fried and a swathe of the company’s top brass are already facing legal action across the pond. Account holders have filed a lawsuit in Miami, claiming that Bankman-Fried and celebrities including US sportsmen Tom Brady and Shaquille O’Neal deceived customers by promoting ‘unregistered securities’.
These are stocks and other assets which have not been registered with the US financial watchdog, and which should only be made available to ‘sophisticated’ investors.
Several lawsuits are already under way to determine whether cryptoassets fit this definition. But lawyers have claimed a ‘wave’ of litigation could be brought against FTX, as investors try every route to get their money back.
FTX allowed users to borrow money in order to ramp up their bets on crypto. But Bankman-Fried claimed it was borrowing from his own trading firm, Alameda Research, which tipped FTX over the edge.
Alameda used FTX’s own ‘coin’, known as FTT, as collateral against its borrowing – leaving Bankman-Fried’s entire empire vulnerable when FTT’s value fell.
Bankman-Fried told staff: ‘I deeply regret my oversight failure.’ But FTX’s new managers, who are overseeing its bankruptcy, claimed Bankman-Fried was running FTX as his ‘personal fiefdom’.
The collapse of FTX has been an embarrassment for its backers, who include hedge fund tycoons, venture capital titans and even celebrities such as supermodel Gisele Bundchen.
McKinney said the legal cases would probably initially play out in the US and the Bahamas, where bankruptcy proceedings have already been initiated.
She added: ‘If it emerges that there are exchange assets which can be recovered in the UK, if there are corporate entities or directors that are based here, and if the English legal system is perceived as a useful forum for recovery by creditors, it may open the door to potential claims this side of the Atlantic.’
Nationwide sounds crypto alarm
Nationwide has become the latest lender to step up precautions around cryptocurrency in the aftermath of FTX’s implosion.
The building society said customers would now have a daily limit imposed on their account, dictating how much of their money they could hand over to crypto-currency providers.
A spokesman for the group said the measures were to ‘protect our members from cryptocurrency scams’.
Nationwide’s move follows similar measures brought in by rivals Santander, TSB, Virgin Money and Starling Bank.
Digital bank Starling told customers on Tuesday that it was preventing all card payments to crypto exchanges, and was restricting any outgoing and incoming bank transfers involving such businesses.