Customers of the cryptocurrency exchange should receive their entire investment back plus interest, according to FTX’s bankruptcy attorneys.
The announcement marked a turning point in the hunt for the $8 billion in client funds that vanished when FTX collapsed almost completely, igniting a crisis in the cryptocurrency space. Almost all of FTX’s creditors, including hundreds of thousands of regular investors who used the exchange to buy and sell cryptocurrencies, would receive cash payments equal to 118 percent of the assets they had stored on FTX under a plan filed in federal bankruptcy court in Delaware, the lawyers said.
These payments would come from a fund that FTX’s attorneys had amassed over the course of the 17 months since the exchange’s demise, according to the attorneys. They used a variety of resources, such as digital currency that FTX retained after declaring bankruptcy and business assets like start-up company shares that were up for auction.
FTX’s recovery is “generally pretty unheard of,” according to Vanderbilt University law expert Yesha Yadav. “That is truly quite astounding for a significant bankruptcy,”
There is a catch to the scheme. Customers’ outstanding balances were determined by taking into account the value of their shares at the time of FTX’s bankruptcy in November 2022. Customers will therefore not profit from the recent spike in the cryptocurrency market that sent the price of Bitcoin to an all-time high. Even though a Bitcoin is currently worth more than $60,000, a customer who lost one during FTX’s collapse, for instance, would only be entitled to less than $20,000.
Months will pass before the rewards start. John T. Dorsey, the federal judge supervising FTX’s bankruptcy proceedings, must approve the plan. Should creditors disagree to the plan, this could cause the deadline to be extended.
“There is still a lot of uncertainty regarding the timing of recovery,” stated Matthew Sedigh, CEO of Xclaim, a platform that allows creditors to exchange bankruptcy claims. “Receiving these amounts in two years is kind of a slap in the face, even if the recovery amount is better than expected.”
Even then, it didn’t appear realistic that clients would receive their money back in the event that FTX failed. Before it collapsed, users kept billions of dollars in cryptocurrency on the exchange and used it as a market place to buy and sell virtual currencies.
Following FTX’s demise, Sam Bankman-Fried, the company’s founder and CEO, resigned and gave the reins to John J. Ray III, a seasoned business turnaround specialist who managed the dissolution of Enron, the energy giant that went bankrupt in 2001.
Afterwards, Mr. Bankman-Fried was found guilty of a massive scam in which he embezzled billions of dollars from FTX customers in order to fund venture capital investments, political contributions, and other expenses. In March, he received a 25-year prison sentence.
Mr. Ray called the bitcoin exchange the worst mess he had ever seen after taking over. He and his team started the laborious task of finding the lost assets over the course of the following few months.
A portion of the recovery resulted from profitable investments Mr. Bankman-Fried made while working at FTX. The business invested $500 million in Anthropic, an artificial intelligence startup, in 2021. The A.I. industry growth increased the value of those shares significantly. For $884 million this year, Mr. Ray’s group sold nearly two-thirds of FTX’s ownership in Anthropic.
Additionally, FTX came to an agreement to retrieve about $400 million from Modulo Capital, a hedge firm that was financed by Mr. Bankman-Fried. Additionally, attorneys for FTX filed actions to reclaim money from various parties, including Mr. Bankman-Fried’s parents, and former firm officials.
Experts in cryptocurrency have been anticipating big recovery in the FTX bankruptcy for months. In an attempt to benefit when the reimbursements start, some shrewd speculators have purchased bankruptcy claims from the exchange’s clients for pennies on the dollar. Additionally, Mr. Bankman-Fried’s attorneys argued that since FTX’s clients were probably going to get their money returned, he should have received a lower sentence when he was sentenced. That argument was dismissed by a judge.
It is unusual for a bankruptcy case like the FTX case to recover at such a rapid pace. The FTX attorneys noted in the court filing on Tuesday that in the Enron case, for instance, it took almost three years for a bankruptcy plan to be authorized and several more years for monies to be disbursed to creditors.
According to the filing, the FTX bankruptcy “proceeded with remarkable alacrity given the challenges faced.”
The attorneys handling the bankruptcy have also made a great deal of money from it. Fees for the Sullivan & Cromwell legal firm and other experts supervising the FTX lawsuit exceeded $320 million as of late September.
Ms. Yadav remarked, “The lawyers have made an absolute killing on this.” “The crypto lawyers are in for a big treat with this.”