The FTX bankruptcy case has reached another critical stage with its $228 million settlement agreement with the cryptocurrency exchange Bybit.
Filed on 24 October, this agreement stems from a lawsuit that FTX filed in 2023. The case aims to recover funds for the benefit of FTX’s former customers and creditors, as FTX seeks to regain financial stability.
The FTX estate alleges that Bybit and its investment division, Mirana Corp., unfairly withdrew millions of dollars from FTX just before it went bankrupt.
Under the proposed settlement, FTX will withdraw $175 million worth of digital assets currently held on Bybit’s platform.
Additionally, FTX will sell approximately $53 million in BIT tokens, the native token associated with Bybit, to Mirana Corp., Bybit’s investment division.
These withdrawals and sales are intended to help FTX recover part of the funds it lost in the lead-up to its collapse.
Attorneys for FTX believe that while they have a solid case, further litigation would be time-consuming and expensive. They state that pursuing the case could drag out for months or even years, with no guarantee of a larger payout.
“Plaintiffs’ claims for turnover, violations of the automatic stay, and fraudulent and preferential transfers are disputed, carry some degree of risk, and in any event would be time-consuming and expensive to further litigate”, FTX’s attorneys wrote in their court filing.
However, this agreement still requires court approval. A hearing is set for 20 November at 2 pm eastern time, where a judge will decide if the settlement can go ahead. If approved, FTX will proceed with its planned asset withdrawal and token sale.
Background of the lawsuit
The FTX estate originally filed the lawsuit against Bybit and Mirana in November 2023, a year after FTX collapsed.
FTX alleged that Bybit and its investment division used special “VIP” privileges, along with close relationships with FTX’s executives, to withdraw approximately $327 million in digital assets and cash just before FTX’s bankruptcy filing.
According to FTX’s lawyers, these withdrawals left FTX with even fewer assets to repay other customers and creditors.
FTX’s legal team claims that Bybit received unique withdrawal privileges, tracked in a database, allowing Bybit to make priority transactions while others faced withdrawal restrictions.
The lawsuit argues that these priority privileges led Bybit and Mirana to remove funds unfairly, leaving FTX’s remaining customers and creditors with a larger financial burden.
Bybit, however, has denied any wrongdoing, claiming that all transactions were legitimate and in compliance with its agreement with FTX.
This lawsuit is just one of several complex legal issues the FTX bankruptcy estate has had to handle.
FTX’s collapse led to numerous disputes, as the company owed significant amounts to its creditors, and allegations of preferential withdrawals only heightened the case’s complexity.
In response, Bybit has stated it acted legally and maintained that its access to funds on the FTX platform was legitimate.
FTX’s progress in bankruptcy
The settlement with Bybit is part of a wider effort by FTX’s bankruptcy estate to recover funds and repay creditors.
Since filing for bankruptcy, FTX has worked through various legal hurdles, including lawsuits and claims from investors and creditors.
Recently, the FTX reorganisation plan, which aims to pay back a majority of creditors, was approved on 7 October by Judge John Dorsey of the Delaware Bankruptcy Court. This plan received backing from over 94% of FTX’s creditors.
Under this reorganisation plan, FTX intends to repay creditors with cash, covering 98% of claims and aiming to provide at least 118% of the original claim value.
This court-approved plan marks a significant milestone in FTX’s path through bankruptcy, bringing relief to creditors who are expecting repayment soon.
Another legal case that has impacted FTX’s bankruptcy proceedings involved Sullivan & Cromwell, the law firm that represented FTX before its collapse.
The firm faced a lawsuit from a group of FTX investors, who claimed Sullivan & Cromwell had knowledge of FTX’s financial mismanagement and fraud.
However, after the reorganisation plan’s approval, these investors voluntarily dismissed their case. They alleged the law firm continued working with FTX despite knowing the firm’s financial troubles.
The withdrawal of this lawsuit has simplified FTX’s ongoing bankruptcy case, allowing the estate to focus on other settlements like the one with Bybit.
