Collapse of crypto exchange FTX to trigger legal battles in the UK

FTX’s spectacular collapse could open the door to UK litigation after thousands of Britons were found to have lost money.

While the founder of the US crypto exchange, Sam Bankman-Fried, apologized in an email to staff, claiming he “didn’t realize the full extent” of the mess his company was in, lawyers claimed it company could also face legal challenges on British shores. like in the US.

FTX, which allows users to buy and sell digital ‘coins’ like bitcoin, imploded earlier this month, leaving some 80,000 UK customers without money.

Nicola McKinney, partner at Quillon Law, who specializes in complex commercial and cross-border litigation, said: ‘There are numerous circumstances in which a claim involving foreign components or co-defendants can be launched and pursued in the UK.’

A case could be brought in an English court if there was a breach of contract in the country, or in a case of negligence if the damage occurred in Britain, she explained.

McKinney said: “Such examples can provide ‘gateways’ for proceedings to be served on a foreign-based defendant, including potential FTX group companies, or individual wrongdoers.

‘Especially in negligence claims, the place of residence of the potential plaintiff is often linked to the place where the damage occurred, which may mean that litigation is taking place here.’

The collapse of FTX has seen an estimated 1 million creditors lose billions of pounds – with the top 50 clients owing an average of more than £52 million – sending chills through the crypto world. About 8 percent of users were based in the UK, suggesting 80,000 Britons lost out.

FTX, Bankman-Fried and some of the company’s top executives are already facing legal action across the pond. Account holders have filed a lawsuit in Miami alleging that Bankman-Fried and celebrities, including American athletes Tom Brady and Shaquille O’Neal, misled customers by advertising “unregistered securities.”

These are stocks and other assets that are not registered with the US financial watchdog and should only be made available to ‘sophisticated’ investors.

Several lawsuits are already pending to determine whether cryptoassets meet this definition. But lawyers have claimed a “wave” of lawsuits could be brought against FTX as investors try every route to get their money back.

FTX allowed users to borrow money to boost their bets on crypto. But Bankman-Fried claimed it borrowed money from its own trading firm, Alameda Research, tipping FTX over the edge.

Alameda used FTX’s own “coin,” known as FTT, as collateral for borrowing it, leaving the entire Bankman-Fried empire vulnerable as FTT’s value plummeted.

Bankman-Fried told staff: “I deeply regret my failure as a supervisor.” But FTX’s new executives, who oversee the bankruptcy, claimed that Bankman-Fried ran FTX as his “personal fief.”

The collapse of FTX has embarrassed its backers, including hedge fund moguls, venture capital titans, and even celebrities like supermodel Gisele Bundchen.

McKinney said the lawsuits are likely to begin in the US and the Bahamas, where bankruptcy proceedings have already begun.

She added: “If it turns out that there are exchange assets in the UK that can be recovered, if there are corporate entities or directors based here, and if the UK legal system is seen as a useful forum for recovery by creditors, then the open the door to possible claims on this side of the Atlantic.’