Collapsed cryptocurrency exchange, FTX, has made unexpected changes to its payout plans. These last-minute adjustments have sparked frustration among crypto holders, as the company is only setting aside 10-25% of funds for them.
Meanwhile, $230 million from government-seized funds has been allocated to shareholders, a move that has surprised many and raised serious concerns.
FTX creditor-activist, Sunil Kavuri, pointed out that the company is transferring “18% of DOJ forfeiture funds” to its shareholders.
What angered many creditors is that this change was made after they had already voted on a liquidation plan.
The details of this revised plan were disclosed 30 days after the voting deadline, leaving creditors feeling misled.
In a typical Chapter 11 bankruptcy case, shareholders are paid only after creditors have been reimbursed.
However, the latest filing from FTX said both shareholders and debtors were keen to avoid the costs and delays that would come from litigation.
In an online discussion, Kavuri explained that “extra money is being transferred to shareholders”, while creditors will be repaid based on cryptocurrency prices at the time the bankruptcy petition was filed.
For example, when FTX filed for bankruptcy, Bitcoin ($BTC) was trading at $16,000. Today, Bitcoin is worth significantly more, trading at around $64.47, which has left many creditors feeling shortchanged.
Social media backlash
The sudden changes to the payout plan have taken a toll on many FTX customers, who are already struggling after the exchange collapsed and froze their funds.
According to Kavuri, the revised plan has caused some customers to suffer mental health issues, such as panic attacks, as they grapple with the reality that their life savings may never be fully returned.
On social media, FTX creditors have been openly expressing their frustration and anger. One user called the situation “disgusting” and accused FTX of sneaking the changes into the plan after creditors had already voted.
Another creditor went as far as to say that FTX has now scammed crypto holders “twice”.
The US Securities and Exchange Commission (SEC) has also raised concerns. They pointed out potential issues, especially if FTX chooses to repay creditors using stablecoins instead of traditional currencies or other assets.
These complaints have emerged just weeks after FTX, and its related company, Emergent Technologies, reached an agreement to use $600 million in Robinhood shares to help repay creditors.
Emergent Technologies was co-founded by FTX’s former CEO, Sam Bankman-Fried. Under the deal, FTX agreed to pay Emergent $14 million to cover expenses and help speed up its own bankruptcy case.
Court hearings and false rumours
While some rumours have circulated on social media suggesting that FTX would start paying creditors from 30 September, these claims are false.
One such rumour came from the Crypto Rover account on X, which claimed that FTX would begin distributing $16 billion to creditors.
However, this was later corrected. The account clarified that the next hearing related to FTX’s bankruptcy is set for 7 October 2024.
This upcoming hearing will be held in the US Bankruptcy Court for the District of Delaware, overseen by Judge John T. Dorsey.
The hearing will focus on whether the court approves FTX’s Chapter 11 restructuring plan, which is the next major step in the process. If the court approves the plan, refunds to creditors can begin.
Additional hearings are scheduled for 22 October, 20 November, and 12 December 2024. If the plan is approved, creditors who are owed less than $50,000 may start receiving payments within 60 days.
Those who are owed larger amounts may have to wait until early 2025 to receive their funds.
Some analysts believe that the repayment of FTX creditors could potentially benefit the wider cryptocurrency market.
They argue that the repayment of billions of dollars could inject fresh capital into the market, driving demand and boosting prices.
Meanwhile, in other news related to FTX’s collapse, the former CEO of Alameda Research (a company closely linked to FTX), Caroline Ellison, was sentenced to two years in prison.
She was originally facing up to 110 years for her role in FTX’s fraudulent activities but received a reduced sentence due to her cooperation in the case against Sam Bankman-Fried, FTX’s founder and her former boyfriend.
