Fallout from FTX (and continuing)

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;
  • Insurers;
  • Regulators;
  • Investor/investment entities and/or advisors or representatives;
  • Banks and lenders, possible guarantors;
  • Investors;
  • 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.

* * * * * * *

Best to you,

David Tate, Esq. (and inactive CPA)

  • Business litigation and disputes – business, breach of contract/commercial, co-owners, shareholders, investors, founders, workplace and employment, environmental, D&O, governance, boards and committees.
  • Trust, estate and probate court litigation and disputes – trust, estate, probate, elder and dependent abuse, conservatorship, POA, real property, mental health and care, mental capacity, undue influence, conflicts of interest, and contentious administrations.
  • Governance, boards, audit and governance committees, investigations, auditing, ESG, etc.
  • Mediator and facilitating dispute resolution:
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    • Business, breach of contract/commercial, owner, shareholder, investor, etc.
    • D&O, board, audit and governance committee, accountant and CPA related.
    • Other: workplace and employment, environmental, trade secret.

Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation, or as or for my opinions and views on the subject matter.

Also note – sometimes I include links to or comments about materials from other organizations or people – if I do so, it is because I believe that the materials are worthwhile reading or viewing; however, that doesn’t mean that I don’t or might not have a different view about some or even all of the subject matter or materials, or that I necessarily agree with, or agree with everything about or relating to, that organization or person, or those materials or the subject matter.

Please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

My two blogs are:

http://tateattorney.com – business, D&O, audit committee, governance, compliance, etc. – previously at http://auditcommitteeupdate.com

Trust, estate, conservatorship, elder and elder abuse, etc. litigation and contentious administrations http://californiaestatetrust.com

David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.

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