FTX customers will get billions of dollars back after judge agrees to bankruptcy plan
A US judge has cleared the way to refund billions of dollars to former customers of bankrupt cryptocurrency exchange FTX.
At a hearing in Wilmington, Delaware, on Monday, judge John Dorsey gave final approval to FTX’s reorganization plan, the terms of which were previously offered to creditors and was voted through by a landslide.
“I think this is a model case of how to handle a very complex Chapter 11 proceeding,” Dorsey said. “I welcome everyone to participate in the negotiation process.”
FTX file for bankruptcy in November 2022 after running out of funds to process customer withdrawals. FTX customer deposits worth billions of dollars were lost. Money, The jury later foundwas caught up in a brother company and spent on high-risk transactions, risky bets, debt repayment, personal loans, political donations, luxury real estate and illegal transactions other.
A year later, FTX founder Sam Bankman-Fried was convicted of multiple counts of fraud and conspiracy. sentenced to 25 years in prison. In September, co-conspirator Caroline Ellison received a two-year prison sentence after testifying against Bankman-Fried at trial.
First proposed in May, FTX bankruptcy plan outlines a path for full refunds, plus interest, to former FTX customers—a level of recovery rarely seen in bankruptcy cases. “In general, anything above 100 cents on the dollar is almost a miracle,” said Yesha Yadav, associate dean and bankruptcy expert at Vanderbilt University Law School. “What tends to happen is that unsecured creditors get pennies on the dollar if they’re lucky. There is an expectation that it is a scarcity process.”
However, in this case, the administrators of the FTX estate were able to recover billions of dollars by liquidating investments made by the exchange’s venture capital firm, FTX Ventures and its sister company, Alameda Research, among other assets. ONE cryptocurrency price increase In the time since FTX filed for bankruptcy, the value of the remaining funds in the exchange’s coffers has increased.
Under the plan, government agencies in the United States—including the Internal Revenue Service and the Commodities and Futures Trading Commission—have agreed to suspend high-value claims against FTX until creditors be reimbursed (although the IRS will receive an upfront payment of $200 million). as part of the settlement).
Even FTX stockholders, who are typically the last to be repaid in bankruptcy, can get back some of their original investment—up to $230 million between them— pay for the use of funds recovered by the Department of Justice through the prosecution of FTX insiders.
But despite the unusually high expected recovery, some creditors believe they are still getting a raw deal thanks to the way their debt is priced.
Many customers held crypto assets like bitcoin on the FTX platform, but through a process called dollarization common to bankruptcies, their claims were instead assigns a dollar value based on the price of those assets on the date of the bankruptcy filing. When FTX fell, the cryptocurrency market was in the doldrums, but it has since reached new all-time highs, meaning some customer complaints would be much more valuable if the amount The return is mapped to the current value of the crypto asset. So, although dollarization is appropriate under bankruptcy law,” said [the return] over 100 percent is wrong,” said Yadav. “For the average person, it’s very far from that.”
