FTX received court approval for its bankruptcy plan on Monday, paving the way for the beleaguered crypto exchange to repay customers using up to $16.5 billion in assets recovered since its collapse.
U.S. Bankruptcy Judge John Dorsey endorsed the wind-down plan during a court hearing in Wilmington, Delaware, calling FTX’s case “a model” for complex Chapter 11 proceedings.
The plan hinges on a series of settlements involving FTX customers, creditors, U.S. government agencies, and liquidators managing FTX’s operations outside the U.S. These settlements prioritize customer repayments over potential claims from regulators. FTX aims to repay 98% of its customers—those holding $50,000 or less—within 60 days of the plan’s effective date, which is still to be determined.
Once a leading player in the crypto space, FTX collapsed after revelations that founder Sam Bankman-Fried misused customer funds to cover risky bets made by his hedge fund, Alameda Research. Bankman-Fried was sentenced to 25 years in prison in March for stealing from FTX customers and is currently appealing his conviction.
FTX continues to negotiate with the U.S. Department of Justice over approximately $1 billion that was seized during Bankman-Fried’s criminal prosecution. Shareholders, who typically would receive nothing in bankruptcy cases, could potentially recover up to $230 million from these seized funds, according to court documents.
FTX estimates it has between $14.7 billion and $16.5 billion available to repay creditors, which would allow for customer recoveries of at least 118% of the value in their accounts as of November 2022, the date of the bankruptcy filing.
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 consented to cooperate with FTX after initially challenging its bankruptcy filing in the U.S.
“This achievement is a victory for creditors, made possible by our efforts to recover cash and crypto assets lost during the company’s chaotic collapse,” stated FTX CEO John Ray. He emphasized the hard work of the professional team that has helped recover billions by restructuring FTX’s financial records.
However, customer reactions to the plan have been mixed. Many are disappointed that FTX’s downfall caused them to miss out on a significant rebound in cryptocurrency prices since the market’s low in 2022. Some customers have expressed frustration, arguing that the repayment does not reflect recent increases in cryptocurrency values.
David Adler, an attorney for four objecting creditors, noted that the price of Bitcoin has surged from around $16,000 in November 2022 to over $63,000 recently. He highlighted that customers who deposited Bitcoin on FTX find it hard to accept a recovery based on the lower prices at the time of bankruptcy.
FTX explained that it cannot simply return the crypto assets originally deposited by customers, as those funds were misappropriated by Bankman-Fried. At the time of its bankruptcy filing, FTX.com only held 0.1% of the Bitcoin that customers believed they had deposited.
A financial adviser for FTX, Steve Coverick, testified that purchasing billions of dollars in crypto assets on the open market to match customer deposits would be “exorbitantly expensive.”
