Many financially sophisticated people and investors lost money (some a lot of money), or have otherwise been caught up in the FTX collapse and bankruptcy. Below are some of my comments at this time.
Just because something unexpected or negative or bad happens doesn’t by itself mean that someone is legally at fault or liable for wrongdoing or loss, or that there was related reliance and causation. We need more information to evaluate these issues.
Lawsuits have been filed (and more to follow?) – if liability is found, will there be FTX or personal money to pay? As FTX filed for bankruptcy, FTX liability might well be determined in that proceeding.
Is there a possibility of criminal claims? Too early to know.
There is a need for an in-depth investigation (obviously) by qualified investigators, which appears to be in progress.
Post-collapse and bankruptcy actions, representations and statements also will be evaluated, including the interviews provided (apparently without an attorney present, and perhaps without sufficient pre-interview preparation and agreed-upon questions, assurances, post-interview review and oversight or authorization, and procedures).
The people who are or who might be caught up in this are many (but being caught up does not by itself mean legally at fault or liable for wrongdoing or loss – and there are also other limitations as FTX is a private, not public, entity, in a generally unregulated business/industry (crypto)):
- CEO (obviously);
- CFO (obviously);
- Board/directors, and and possible committees (i.e., audit, governance) (obviously);
- Possible additional internal people who directly or indirectly acted or made representations;
- Possible people who directly or indirectly took or obtained related money or assets;
- Possible other entities and people who were or who became directly or indirectly involved;
- Auditors (internal and outside independent, but I do not believe that there were internal auditors) – this will be a very complicated evaluation, for example, based on what services were retained and were performed, what standards and procedures applied and/or were or perhaps should have been performed, what “opinions” or other reports were provided, what was known, what was unknown, what perhaps should have been known, who was entitled to rely, causation, etc.;
- General counsel – historically, generally not, but possible general counsel exposure appears to be expanding in certain circumstances;
- Celebrity endorsers – see my prior post;
- Investor/investment entities and/or advisors or representatives;
- Banks and lenders, possible guarantors;
- Possible third party entities with which FTX contracted;
- Professional licensing entities; and
- More: possibly/probably more.
Thank you for reading. Please do pass this blog and blog post and information to other people who would be interested as it is only through collaboration and sharing that great things and success are more quickly achieved.
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Best to you,
David Tate, Esq. (and inactive CPA)
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David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.