On October 8, 2024, Reuters reported that FTX, once a leading cryptocurrency exchange, received court approval for its bankruptcy plan. This milestone allows the company to repay customers using up to $16.5 billion in assets recovered since its collapse.
A Landmark Decision in Bankruptcy Proceedings
U.S. Bankruptcy Judge John Dorsey approved the wind-down plan during a court hearing in Wilmington, Delaware. He commended the proceedings, noting that FTX's case serves as a model for handling complex Chapter 11 bankruptcies.
Prioritizing Customer Repayment
The approved plan is built upon a series of settlements with FTX customers, creditors, U.S. government agencies, and international liquidators. These agreements enable FTX to prioritize repaying its customers before addressing claims from government regulators. The company aims to repay 98% of its customers—those who held $50,000 or less on the exchange—within 60 days after the plan's effective date, which has yet to be determined.
Background: The Fall of a Crypto Giant
FTX's downfall began when it was revealed that founder Sam Bankman-Fried used customer funds to cover risky investments made by his hedge fund, Alameda Research. In March, Bankman-Fried was sentenced to 25 years in prison for misappropriating customer assets, although he has appealed the conviction.
Negotiations with the Department of Justice
FTX is in ongoing discussions with the U.S. Department of Justice regarding $1 billion seized during the criminal proceedings against Bankman-Fried. Court documents indicate that FTX shareholders, who typically receive nothing in bankruptcy cases, could potentially receive up to $230 million from these seized funds.
Financial Outlook and Asset Recovery
The company estimates it will have between $14.7 billion and $16.5 billion available to repay creditors. This amount is sufficient to pay customers at least 118% of the value in their accounts as of November 2022, the month when FTX filed for bankruptcy.
Collaborations with Government Agencies
Several U.S. government agencies, including the Commodity Futures Trading Commission and the Internal Revenue Service, have agreed to allow FTX to prioritize customer repayments over fines and tax debts. Additionally, a liquidator appointed in the Bahamas has agreed to work with FTX after previously challenging the company's authority to file for bankruptcy in the U.S.
Leadership Remarks
FTX CEO John Ray expressed gratitude for the progress made, stating that the achievement was only possible due to the "experience and tireless work of the team of professionals" who have recovered billions by rebuilding the company's financial records and gathering assets globally.
"Today's achievement is only possible because of the experience and tireless work of the team of professionals supporting this case, who have recovered billions of dollars by rebuilding FTX's books from the ground up and from there marshaling assets from around the globe,"
FTX CEO John Ray said in a statement on Monday according to Reuters.
Challenges Ahead
At the time of the bankruptcy filing, FTX.com held only 0.1% of the Bitcoin that customers believed they had deposited. Financial adviser Steve Coverick noted that it would be prohibitively expensive to purchase billions in cryptocurrencies on the open market to repay customers in the exact assets they held prior to the bankruptcy.
The court's approval marks a significant step forward for FTX and its customers. With the plan in place, many customers are expected to recover their funds, bringing a measure of resolution to one of the most significant collapses in the cryptocurrency industry.
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