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Compensation order comes five months after founder Sam Bankman-Fried was jailed for role in collapse

A US court has ordered the bankrupt cryptocurrency exchange FTX to shell out $12.7bn (£9.9bn) to compensate customers and fraud victims, five months after its founder was jailed for his role in the collapse of the company.

The Commodity Futures Trading Commission (CFTC) said it was the “largest such recovery” in the regulator’s history and would help return funds to those affected by the “massive fraudulent scheme orchestrated by Sam Bankman-Fried, his now-bankrupt FTX group of companies, and a core group of FTX insiders”.

FTX imploded in late 2022 amid a crypto price crash. Its founder, Bankman-Fried, was jailed in March for 25 years after he was convicted of fraud and conspiracy to launder money late last year. He has been ordered to forfeit $11bn in assets.

FTX, which was once worth $32bn, had used customer funds for risky investments, through a closely associated hedge fund, Alameda Research. Bankman-Fried in turn used customer money for his own exploits, including large political donations in his name, luxury cars, properties in the Bahamas and endorsements from A-list celebrities.

An enormous budget shortfall was revealed after customers started asking for their cash to be returned. Prosecutors said Bankman-Fried’s operations amounted to “old-fashioned embezzlement” disguised under the facade of new technology. In total, Bankman-Fried was accused of stealing $8bn from his customers.

“FTX used age-old tactics to create an illusion that it was a safe and secure place to access crypto markets,” the CFTC chair, Rostin Behnam, said. “But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there.”

The latest compensation order by the US district court for the southern district of New York ends a near two-year legal case filed by the CFTC in December 2022.

The judge’s order permanently bans FTX from trading, holding or receiving funds for the purpose of buying or selling digital assets.

However, Behnam said the case was evidence that more stringent rules were needed to regulate digital assets and cryptocurrencies.

He said: “As I have been saying for years, this is just the tip of the iceberg. In the absence of digital asset legislation to fill regulatory gaps, entities will continue to operate in the shadows without these basic tools of sound regulation, sharpening their deceptive practices and continuing to dupe customers.”