FTX Gets Court Approval to Pay Nearly 120 Percent of Creditor Claim Amounts

The company intends to make payments to creditors in more than 200 jurisdictions.
FTX Gets Court Approval to Pay Nearly 120 Percent of Creditor Claim Amounts
FTX founder Sam Bankman-Fried arrives for a court appearance at Manhattan Federal Court in New York City on July 26, 2023. Michael M. Santiago/Getty Images
Naveen Athrappully
Updated:
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Former cryptocurrency exchange FTX has secured court approval for its bankruptcy plan, potentially setting aside more than $16 billion to pay creditors.

“The United States Bankruptcy Court for the District of Delaware has confirmed FTX’s Plan of Reorganization, less than two years after its historic bankruptcy filing,” the company said in an Oct. 7 statement. “Under the terms of the Plan, 98 percent of the creditors of FTX by number will receive approximately 119 percent of the amount of their allowed claims.”

The payments will be made within 60 days of the reorganization plan becoming effective.

FTX expects the total value of property collected, converted to cash, and available for distribution to be in the range of $14.7 billion to $16.5 billion.

FTX’s bankruptcy stems from financial issues at the firm. A CoinDesk report published balance sheet details for Alameda Research, the trading firm established by FTX’s disgraced CEO, Sam Bankman-Fried. The report revealed that a substantial amount of Alameda’s assets were locked in FTX’s digital coin FTT.

A later report from CNBC indicated that Alameda was trading billions of dollars from FTX accounts without client knowledge and that the firm leveraged FTT as collateral.

Following these revelations, Binance’s then-CEO, Changpeng Zhao, said he would liquidate $500 million worth of FTT holdings, which triggered a run on both the cryptocurrency and FTX. The company tried to raise funds to keep the business afloat but failed.

FTX eventually filed for bankruptcy in November 2022. Prior to the bankruptcy, the company’s balance sheet showed that the firm had only $900 million in liquid assets to cover its $9 billion in liabilities.

The company suspended customer withdrawals, and its assets were frozen by Bahamas regulators.

According to John J. Ray III, CEO and chief restructuring officer of FTX, the court’s decision to approve the reorganization plan is a “significant milestone” as the company attempts to give back cash to its creditors and customers.

“We are poised to return 100 percent of bankruptcy claim amounts plus interest for non-governmental creditors through what will be the largest and most complex bankruptcy estate asset distribution in history,” he said.

“The estate is working to finalize arrangements to make distributions to creditors across more than 200 jurisdictions around the world.”

Some customers have opposed the settlement, noting that they would suffer losses because of the decision to repay their funds based on cryptocurrency prices from November 2022. At the time, crypto prices were lower than what they are now.
For instance, bitcoin was valued at about $20,500 on Nov. 1, 2022. It is now trading at more than triple that, at more than $62,000.

Rulings Against FTX

The Commodity Futures Trading Commission (CFTC) obtained a $12.7 billion judgment against FTX and Alameda Research, with a New York court ordering FTX to pay the amount as part of offering monetary relief to the company’s victims, according to an Aug. 8 statement from the CFTC.

At the Delaware bankruptcy court, the agency also agreed to subordinate its claims to those made by “victims of the FTX fraud scheme.”

“FTX used age-old tactics to create an illusion that it was a safe and secure place to access crypto markets. But the basic regulatory tools, like governance, customer protections, and surveillance that exist to identify misconduct and ultimately prevent collapse, were simply not there,” CFTC Chairman Rostin Behnam said.

Ian McGinley, director of the enforcement division, said the multibillion-dollar recovery was “the largest such recovery in CFTC history.”

Bankman-Fried was sentenced to 25 years in prison in March on charges of defrauding investors via FTX.

“He knew it was wrong,” said U.S. District Judge Lewis Kaplan, who handed down the sentence. “He knew it was criminal. He regrets that he made a very bad bet about the likelihood of getting caught. But he is not going to admit a thing, as is his right.”

Bankman-Fried appealed the conviction last month and requested a new trial, with his lawyers claiming in a brief that he was “presumed guilty—before he was even charged.”
In late September, Caroline Ellison, a former executive at Alameda Research, was sentenced to two years in prison. She was ordered to forfeit roughly $11 billion worth of assets.
Naveen Athrappully
Naveen Athrappully
Author
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.