FTX will now repay billions to customers who lost money after it received a bankruptcy plan approval on Monday.
FTX has received court approval for its bankruptcy plan, enabling the company to repay customers using up to $16.5 billion in assets recovered since the collapse of the once-prominent crypto exchange.
U.S. Bankruptcy Judge John Dorsey approved the plan during a court hearing in Wilmington, Delaware, describing FTX’s situation as “a model case” for navigating complex Chapter 11 proceedings.
The approved plan includes a series of settlements with FTX customers, creditors, U.S. government agencies, and liquidators involved in winding down FTX’s operations outside the U.S.
These settlements allow FTX to prioritize repaying its crypto exchange customers before addressing any claims from government regulators.
The company aims to repay 98% of customers with accounts holding $50,000 or less within 60 days of the plan’s effective date, which has yet to be set.
Once a leading player in the crypto market, FTX fell apart after revelations that founder Sam Bankman-Fried had misused customer funds to cover risky investments made by his hedge fund, Alameda Research.
In March, Bankman-Fried was sentenced to 25 years in prison for stealing from FTX customers, and he is currently appealing his conviction.
FTX is also in discussions with the U.S. Department of Justice regarding $1 billion seized during the criminal case against Bankman-Fried.
Shareholders, who typically receive nothing in a bankruptcy, could see up to $230 million from these seized funds, according to court documents.
The company estimates it will have between $14.7 billion and $16.5 billion available to repay creditors, which would allow customers to recover at least 118% of the value in their accounts as of November 2022, the month FTX filed for bankruptcy.
U.S. agencies, including the Commodity Futures Trading Commission and the Internal Revenue Service, have agreed to let FTX prioritize customer repayments over fines and tax obligations.
A liquidator appointed in the Bahamas has also agreed to cooperate with FTX after initially challenging its bankruptcy filing in the U.S., per a Reuters report.
FTX considers this a victory for creditors, made possible by its successful recovery of lost cash and crypto assets during its tumultuous collapse.
The company has also generated additional funds by selling off assets, including investments in technology firms like the AI startup Anthropic.
“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,” stated FTX CEO John Ray.
Customer reactions to the repayment plan have been mixed, with some expressing frustration that FTX’s downfall prevented them from benefiting from the recent surge in crypto prices since 2022.
A few customers have raised objections, seeking higher repayments that reflect the recent increases in cryptocurrency values.
David Adler, an attorney for several objecting creditors, pointed out that the price of Bitcoin has surged to over $63,000 from its November 2022 low of $16,000. Customers who deposited Bitcoin on FTX are struggling to accept that they are receiving full recovery based on these earlier, lower prices.
FTX explained that it couldn’t simply return the crypto assets customers originally deposited because those assets had been misappropriated by Bankman-Fried.
At the time of its bankruptcy filing, FTX.com held just 0.1% of the Bitcoin that customers believed they had deposited.
Financial advisor Steve Coverick testified that it would be “exorbitantly expensive” to acquire billions in crypto assets on the open market to repay customers with the same types of cryptocurrency they had before the bankruptcy.
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