A US court has approved a plan for FTX, the defunct cryptocurrency exchange, to pay back billions of dollars to its customers.
This decision comes almost two years after FTX filed for bankruptcy in November 2022, when it collapsed following major financial mismanagement by its founder, Sam Bankman-Fried.
The approval, given by US Bankruptcy Judge John Dorsey on 7 October, allows FTX to use up to $16.5 billion of recovered funds to repay customers who lost their money.
Judge Dorsey called the case “a model” for handling complicated bankruptcy cases under Chapter 11 of the US Bankruptcy Code.
The plan involves various settlements with FTX customers, creditors, US government agencies, and liquidators working outside of the country. These settlements ensure that FTX customers will be prioritised for repayment over fines or taxes owed to regulators.
FTX’s current CEO, John J. Ray III, described the court’s approval as an important step toward making repayments.
“The Court’s confirmation of our Plan is a significant milestone on our pathway to distributing cash to customers and creditors”, said Ray.
Customers to recover 119%, but concerns remain
The court-approved plan will allow FTX to repay 98% of the claims made by users, which amounts to about 119% of the value in their accounts at the time the company went bankrupt.
FTX estimates that it will have between $14.7 billion and $16.5 billion available to repay its customers, making this one of the largest bankruptcy asset distributions in history.
However, not everyone is happy with the plan. Many customers are frustrated because the repayment is based on the value of cryptocurrencies in November 2022.
At that time, Bitcoin ($BTC) was worth around $16,000. As of now, Bitcoin’s value has surged to over $63,000, leaving some customers feeling they missed out on significant gains in the market since the company collapsed.
David Adler, a lawyer representing some of the unhappy creditors, explained: “Customers are struggling to accept that they are receiving a full recovery based on prices from when FTX collapsed, not today’s significantly higher market value”.
FTX has responded to these concerns, explaining that the original cryptocurrency assets customers deposited can’t be returned because those assets were misused by Bankman-Fried and his company, Alameda Research.
Legal issues and recovery efforts continue
FTX’s collapse led to several criminal charges and civil lawsuits against those involved. Sam Bankman-Fried was sentenced to 25 years in prison for stealing customer funds and using them to make risky investments through his hedge fund, Alameda Research.
He is currently appealing his conviction. Former Alameda Research CEO, Caroline Ellison, was also sentenced to two years in prison for her role in the fraud.
The company is still in discussions with the US Department of Justice over $1 billion in funds that were seized as part of the criminal case against Bankman-Fried. Some of this money could go to FTX shareholders, who rarely receive anything in bankruptcy cases.
Court documents suggest that shareholders could receive as much as $230 million from these funds.
In addition to recovering customer funds, FTX has also managed to raise money by selling off its investments in other companies. This includes the sale of its stake in an AI startup called Anthropic.
Ray praised the hard work of the professionals involved in this recovery effort, saying, “Today’s success is a result of the hard work and expertise of the professionals involved in this case, who have managed to recover billions by reconstructing FTX’s financial records and gathering assets globally”.
FTX has not yet confirmed when it will start distributing the funds to its users. There were false rumours circulating in September that suggested the repayments had already begun.
When these billions of dollars are eventually returned to crypto users, it could have a significant impact on the cryptocurrency market, much like the repayments made in the Mt. Gox case earlier in 2024.
