Request For Consolidation of FTX’s Class-Action Law Suits Now Denied

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The ongoing legal battle between the bankrupt cryptocurrency exchange FTX and its investors took a major turn this week. The judge presiding over the case outrightly denied the request to consolidate the class-action lawsuits against FTX.

Consolidation Request Denied

The order on the consolidation was laid down on the 8th of March. The United States District Judge Jacqueline Scott Corley refused the collective request of the plaintiffs for consolidation of all the class-action lawsuits that were being filed against the bankrupt FTX since 2022.

There are a total of 5 proposed class-action lawsuits filed against the crypto exchange. The concerned plaintiffs, in this case, are Michael Elliot Jesus, Julie Papadakis, Elliot Lam, Russell Hawkins, and Stephen Pierce. All the class-action lawsuits are being filed against the accused, who is the CEO of the former functional crypto exchange, and some other executive members of the boards.

What is FTX?

FTX was founded in the year 2018. It was founded by an MIT graduate and international ETF trader named Sam Bankman-Fried. FTX was started as a centralized cryptocurrency exchange. The exchange offered diverse trading products such as MOVE, spot market, options, leverage tokens, derivatives, and volatility products. After just four years of operations, in July 2021, FTX became so successful that it was deemed the third-largest crypto exchange in the world.

FTX was able to attract a lot of crypto investors because of its massive range of products. It also offered a user-friendly trading app compatible with both desktop and web3 mobile versions. The crypto exchange platform also offered a range of order types covering basic orders to trailing stop orders. The exchange allows deposit and withdrawal via 9 fiat currencies such as the US dollar, euro, GBP, Canadian dollar, Swiss franc, Brazilian real, Australian dollar, Ghanaian cedi, and Argentine peso. The exchange’s native token was FTT/USDT, but it also supported other cryptocurrency pairing such as BTC/USDT, ETH/USDT etc.

The exchange was domiciled in the Bahamas. It allowed the people living in the US to trade via its FTX US platform.

FTX’s Collapses

The collapse of the FTX was initiated by a scoop printed by CoinDesk which raised Alameda Research’s (a trading firm affiliated with FTX) solvency concern. The downfall of FTX created massive rides in the entire cryptocurrency market. It caused the valuation of the crypto market to fall below $1 trillion.

Within a few days, FTX experienced from liquidity crisis and seemed bailout funds. Its market competitor Binance thought of buying out a portion but backed out later. By the second week of November 2022, Bankman stepped down from his position as the CEO and FTX filed for bankruptcy. Soon after, Bankman was arrested and extradited to the US for trial. On the 3rd of January 2023, Bankman pleaded innocent to all the criminal charges filed against him.

Lawsuits Against FTX

There are currently 5 class-action lawsuits against FTX. Cases have been filed for embezzlement and misappropriation of company assets. FTX and the former CEO Sam Bankman-Fried was also accused of being engaged in a breach of fiduciary duty, market manipulation, and various other wrongful conduct.

The 5 above-mentioned parties who have filed the class actions are mainly after Bankman. However, the filed cases also involve other defendants related to the exchange, such as auditors, executives, and celebrities who promoted the exchange despite knowing the financial rut it was in.

Why was the consolidation denied?

The plaintiffs had proposed before the court that all the cases against FTX and Bankman should be combined and heard together. They stated that none of the defendants involved had filed any opposition.

However, the judge laid down the order that this request would not be accepted. This decision was unexpected as none of the defendants had opposed the motion.

The judge mentioned that it is too premature to appoint an interim counsel to consider consolidation of the cases. It was also stated in the order that all of the defendants had not had the opportunity to respond officially to the case yet. In such circumstances, it would be unfair to decide to consolidate without hearing the defendant’s side of the story.

Implications Of The Decision

The decision to not allow for the consolidation of all the cases against FTX would mean that all of these individual cases will proceed on their own instead of hearing as one single criminal case against the exchange. This decision would affect everyone involved investors, company stakeholders, plaintiffs, and FTX.

For the plaintiffs, it would mean that they all will have to go for litigation of their cases separately against FTX. There is a risk here that the rulings and decisions for these cases may not be uniform, as each case will be considered on its facts. The cost and time involved for each of these proceedings will be a lot. Plus, the recovery from each of these cases may not be consistent and would depend on how favorable the decision was.

It will also be a tiresome process for FTX as it will have to take a stand against each of these cases. FTX is at risk of wasting too many resources to defend itself against each of these litigations. There is also a chance that the jurisdiction for each case may be different, and that would involve more time and money. With all the cases now going to proceedings, FTX may be liable for multiple damages against each of them.

If the decision comes against Bankman, he could face jail term for more than 100 years. The criminal trial is scheduled for October 2023.

Final Words

This legal battle is expected to pave the way for future litigation involving the cryptocurrency market. It will be interesting to note the development of this case as it will highlight the complexities of crypto litigation. The decision for this legal fight will perhaps bring some much-needed positive regulation to the cryptocurrency industry.

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