Small Investors Will Likely Be the Biggest Losers of FTX Collapse

Following the collapse of FTX, the cryptocurrency exchange once valued at $32 billion, much of the attention has focused on the now-bankrupt firm’s most prominent investors and celebrity endorsers. 

But with more than 1 million creditors, many young people and mom-and-pop investors will be left holding the bag.

A bankruptcy court hearing scheduled for Friday at 10 a.m. EST could shed more light on the full spectrum of those who lost money due to FTX’s implosion. The hearing will consider a motion to release a complete list of FTX’s creditors, including their names and email addresses.

Former Federal Deposit Insurance Corporation (FDIC) chair Sheila Bair recently told Fox Business the real tragedy of the FTX collapse is there are “potentially a million much smaller investors, and proportionately, they’re the ones that are really going to get hurt.”

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The logo of FTX is seen at the entrance of the FTX Arena in Miami Nov. 12, 2022. (REUTERS/Marco Bello/File Photo / Reuters Photos)

Bair noted that FTX and the crypto industry at large have marketed heavily to young people and said it “saddens” her that so many who bought into the company’s allure are unlikely to recover their investments.

She suggested that, to prevent a similar future collapse, crypto exchanges should be required to show proof of reserves and that some supervisory enforcement should be put in place.

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Current FTX CEO John J. Ray III, a corporate restructuring expert who handled the bankruptcy of energy trader Enron, testified before the House Financial Services Committee Tuesday and indicated that customers who put their money into FTX and its affiliates shouldn’t hold out hope for a full recovery of their investments.

“We will never get all these assets back,” Ray said bluntly.

Samuel Bankman-Fried leaves court in Nassau, Bahamas, Tuesday.  (Mega for Fox News Digital / Fox News)

In its initial filings during the early stages of its bankruptcy proceedings, FTX indicated it owed its 50 biggest unsecured creditors over $3 billion. At that time, the firm could identify 100,000 creditors that it was aware of, most of whom were customers of FTX. 

However, because the bankruptcy of FTX and its more than 130 affiliated entities may also affect former customers and others, the total number of creditors may ultimately rise above 1 million.

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Sam Bankman-Fried, founder and former CEO of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York Aug 17, 2022.  (Jeenah Moon/Bloomberg via Getty Images / Getty Images)

FTX founder and former CEO Sam Bankman-Fried was arrested by authorities in the Bahamas on Monday and is expected to be extradited at a later date. 

Federal prosecutors announced Tuesday that Bankman-Fried was indicted on eight charges in the U.S. that carry a combined maximum sentence of 115 years in prison. The charges against him include wire fraud on customers, plus a related conspiracy charge; wire fraud on lenders, plus a conspiracy charge; conspiracies to commit commodities fraud, securities fraud, money laundering and violate campaign finance laws.

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U.S. Attorney for the Southern District of New York Damian Williams said the Bankman-Fried case, which has drawn comparisons to Bernie Madoff’s Ponzi scheme and the Enron scandal, will go down as “one of the biggest frauds in American history.”

Fox Business’ Breck Dumas contributed to this story.

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