FTX Collapse: Customer Assets, Governance and the Final Criminal Outcome
FTX looked liquid and sophisticated until customers asked for their assets back. The collapse exposed the difference between platform balances and verifiable custody.
Current position
Sam Bankman-Fried was convicted in November 2023 on fraud and conspiracy counts and sentenced in March 2024 to 25 years in prison, with forfeiture ordered. FTX’s bankruptcy and customer distribution process is legally separate from the criminal conviction and should not be described as if every customer recovery is complete or guaranteed.
Key facts at a glance
| Collapse and bankruptcy | November 2022 |
|---|---|
| Criminal verdict | November 2023 |
| Sentence | 25 years, imposed in March 2024 |
| Control focus | Customer assets, related parties, liquidity and governance |
What this means in practice
A screen balance is not custody proof
Users need to know who legally holds assets, whether they are segregated, what rights apply in insolvency and whether the platform lends or pledges them.
Related parties multiply risk
Transfers between an exchange, trading affiliate and founders can defeat apparent controls if governance, limits and disclosure are weak.
Liquidity must be realisable
A token issued or supported by related parties may have a market price without enough independent depth to meet withdrawals in stress.
Practical example
A treasury team holds operating cash and tokens on one exchange because transfers are easy. The dashboard shows a balance, but no independent confirmation of custody, segregation or withdrawal capacity. Convenience has become concentration risk.
A practical decision framework
1. Define the exact claim
Identify the entity, product, transaction, period and legal forum. Do not apply a headline about one company, order or market event to a different fact pattern.
2. Reconcile the economics
Trace the claim to cash flow, balance-sheet exposure, contractual rights and the measurement definition. Separate revenue from transaction value, profit from liquidity and allegation from final outcome.
3. Check the operative record
Read the latest primary document and note whether it is a policy paper, interim order, final order, judgment, agreement, filing or historical report.
4. Convert the lesson into a control
Assign an owner, deadline, evidence requirement and escalation threshold. A lesson is useful only when it changes a decision or control.
Action checklist
- Limit exposure to any single exchange or custodian.
- Read custody, rehypothecation and insolvency terms.
- Use independent wallet or bank confirmations for material balances.
- Review related-party transactions and token concentration.
- Maintain tested withdrawal and business-continuity procedures.
Evidence and document checklist
- Customer and custody agreements
- Independent bank or wallet confirmations
- Related-party transaction register
- Liquidity and withdrawal test records
- Bankruptcy claim and distribution documents
Common mistakes and red flags
Common mistakes
- Treating a platform statement as audited custody evidence
- Using a related token as high-quality collateral
- Allowing founders to override treasury controls
- Assuming a criminal sentence completes bankruptcy recoveries
Red flags
- Customer assets and house assets share accounts
- Material balances cannot be independently confirmed
- Withdrawals slow while promotional yields rise
- Board, auditor and risk functions lack independence
Escalation route
For regulated products or proceedings, start with the responsible entity’s grievance or compliance channel and preserve written records. Use the relevant regulator, exchange, court or tribunal process where applicable. Obtain specialist advice before a limitation period, filing deadline, tax position or material right is affected.