‘Lost home deposit’: Aussie crypto investors stonewalled after FTX collapse

FTX creditors are struggling to reclaim even a fraction of their money,  highlighting regulatory challenges in the wake of the cryptocurrency exchange’s downfall.

FTX founder Sam Bankman-Fried was found guilty of numerous fraud charges. Picture: Michael M. Santiago/Getty Images

Creditors who were promised all their money back after the collapse of cryptocurrency exchange FTX are struggling to get a fraction of what they are owed from liquidators or facing lengthy delays, and say they are being “stonewalled”.

One Victorian man has lost almost $200,000 – money he had hoped to use as a deposit to buy a home.

Confusion has reigned after FTX’s various arms across the world appointed different liquidators, with some investors unsure about how they lodge a claim to get their money back. Others, such as the Victorian man – who spoke on the condition of anonymity – said he lodged his claim with PwC, given it was appointed the liquidator of FTX Digital Markets in the Bahamas.

“There were sort of two ways you could go. There was a US side and the Bahamas side. The US claims process was sort of worded as being just for US residents,” the man said. “I chose the Bahamas one because obviously I was international, and a lot of Australians did as well. But then I later found out that anyone could have actually done the US one, and it was a lot quicker and easier.”

About 30,000 Australians had money tied up in FTX, which was once valued at $US32bn ($48bn), when it declared bankruptcy in late 2022. The group went into liquidation last year, while founder Sam Bankman-Fried was found guilty of numerous fraud charges.

Customers and creditors held little hope they would get their money back, believing they would receive only cents on the dollar for their holdings. But lawyers guiding FTX said they expected full repayment for approved claims.

A screenshot of the ‘onerous’ process to reclaim FTX funds.

John Mouawad and Scott Langdon of KordaMentha, the administrators of separate FTX entities, FTX Australia and FTX Express, also said creditors were likely to get their money back.

But creditors who opted to go via PwC in the Bahamas have not had a smooth ride.

The claim process has attracted a litany of complaints on online forums such as Reddit, while the Victorian man said PwC had stopped responding to his queries. PwC Australia referred questions from this masthead to its global operations, which have yet to respond.

The main hurdle has been the “know your customer” obligations – a process the Victorian man described as “onerous”.

“At the start, the communication was pretty good. Then it got to the KYC stage. They asked for an insane amount of information, like the last five years of income … a lot of stuff.

“I literally submitted the KYC information the day after. I didn’t hear back for maybe six months, and then they got back to me. They said, ‘you need to redo this’.

“So I redid that on the day as well, and did not hear back from them for months.”

The man was then told if he did not submit the information by June 2, his claim would be forfeited.

“Obviously, I had done my KYC six months before that, so I started freaking out. I started emailing every single email address I could find. I still haven’t heard anything back.

“I had close to $200,000 – my house deposit. It was pretty devastating, to be honest.”

Then he was told that he might be entitled to $12,000.

“The way they calculated it was, they said the total balance I had was right at the bottom of the bear market. The prices had already crashed, ‘this is what you have on the platform, so if you do get it back, it’s like $12,000 or so’,” he said.

But the experience has not tainted his appetite for investing in crypto. Bitcoin, the biggest cryptocurrency, traded as high as $US115,000 ($175,200) on Friday – a record.

“Obviously, (it has been) a few steps backwards in the wrong direction, but I know where the industry is going. It’s the most disruptive tech ever made, so I know it’s the right place to be, and I just have to just keep working. But it hasn’t scared me off at all,” he said.

“I still invest. I still trade every day. It’s what I love doing, and I think it’s the future.”

Mena Theodorou, co-founder of Australian crypto exchange Coinstash, said FTX’s collapse highlighted the importance of regulation for the sector.

“Many crypto traders and investors in Australia are currently facing FTX payout delays. It’s causing widespread frustration and uncertainty, especially because Bitcoin is breaking all-time highs and other altcoins are continuing to show strong performance, while the future of their assets remains uncertain,” he said.

“These challenges serve as a powerful reminder of the importance of local custodianship.

“Using regulated, compliant local platforms to invest in digital assets protects Australians against unnecessary and sometimes devastating risks. To operate a crypto exchange in Australia, all providers must be registered with Austrac. With nearly one in three Australians holding crypto, the government can no longer treat investor protection and regulation as a fringe issue. When local investors choose to support Australian crypto platforms, they’re not only safeguarding their own portfolios – they’re also backing local innovation and strengthening the case for a fair, regulated market.”

Originally published as ‘Lost home deposit’: Aussie crypto investors stonewalled after FTX collapse