The collapse of FTX caught many by surprise, but really I can’t say I was exactly shocked, given my feelings of deep suspicion over the whole crypto universe. As I’ve said previously, I think many crypto operations are essentially glorified Ponzi schemes, and the product at base is worthless.
What’s happened here – and this is not a phenomenon limited to just this sector, I must add – is what’s now known as ‘FOMO’: Fear of Missing Out. What’s this? Uranium-rich jelly baby deposits in the Black Mountains? I want a piece of that! And so it goes. Markets go into overdrive where they feel a buck can be made? Unregulated? Don’t really understand it? Has the whiff of bullshit about it? Who cares? SELL SELL SELL!
Well, we’ve been here before with other bubbles. Now what matters is the cleaning-up, and it’s here that the crucial question for insurers remains: are they on the hook?
Again, the answer is we won’t know for sure for some time, but one thing does seem certain: fraud or irregular accounting issues will trigger raft of claims against wide group of third parties.
According to Dan Wyatt, partner at law firm RPC, whatever the reasons for FTX’s collapse, its customers are likely to lose out significantly. As he says: “If fraud or irregular accounting issues are identified then we expect they will look to bring actions against those directly involved in the events leading to FTX’s downfall but also wider third parties such as banks, professional advisers and others who played a part.”
And as he points out, in all major financial scandals, from Enron to Madoff to Wirecard, claimants have looked to pursue those businesses that have deep pockets.
Buckle up and get ready for yet another litigation rollercoaster!
Editor, Emerging Risks