Customers of failed cryptocurrency exchange FTX are prepared to recover all the money they lost during the company's collapse in 2022, plus interest, the company's bankruptcy lawyers announced on Tuesday.
The announcement marks a milestone in efforts to trace the $8 billion in customer assets that disappeared when FTX collapsed virtually overnight, sparking a crisis in the crypto industry. According to a plan filed in U.S. Bankruptcy Court in Delaware, virtually all of FTX's creditors, including the hundreds of thousands of retail investors who used the exchange to buy and sell cryptocurrencies, will have to pay for their holdings on FTX. The company will receive a cash payment equal to 118% of its assets. the lawyers said.
These payments flow from a pool of assets that FTX's lawyers have amassed in the 17 months since the exchange collapsed, lawyers said. They drew on a wide range of sources, including company assets such as digital currencies that FTX still owned at the time of its bankruptcy filing and shares in startup companies that could be sold to bidders.
Iesha Yadav, a law professor at Vanderbilt University, said the amount recovered by FTX is “pretty unprecedented in general.” “This is really surprising for a major bankruptcy.”
There are caveats to this plan. The amount owed to customers was based on the value of assets held at the time of FTX's bankruptcy in November 2022. This means customers will not be able to benefit from the recent crypto market rally that has pushed Bitcoin prices to record highs. . For example, a customer who lost 1 Bitcoin when FTX collapsed will be entitled to receive less than $20,000, even though 1 Bitcoin is currently worth more than $60,000 to him.
It will take several months for payments to begin. The plan requires approval from John T. Dorsey, the federal judge overseeing FTX's bankruptcy. If creditors object to the plan, the deadline could be extended.
“The timing of the recovery remains a big question mark,” said Matthew Sedi, chief executive of Exclaim, a platform for creditors to trade bankruptcy claims. “Even if the amount collected is higher than expected, it will be difficult in some ways to collect this much amount two years later.”
Still, it seemed unlikely that customers would get their money back when FTX collapsed. Before the collapse, customers used the exchange as a marketplace to buy and sell digital currencies and stored billions of dollars of cryptocurrencies on the platform.
After FTX's collapse, founder and CEO Sam Bankman Freed resigned and John J. Ray, the corporate turnaround veteran who oversaw the unwinding of the failed energy company Enron in 2001,3 Management rights were handed over to Mr.
Bankman Fried was later convicted of a massive fraud that siphoned billions of dollars from FTX customers' savings to fund venture investments, political contributions and other expenditures. He was sentenced to 25 years in prison in March.
After taking office, Ray said it was the biggest disruption crypto exchanges had ever seen. Over the next few months, he and his team began the arduous task of tracking down the missing assets.
Part of the payback was due to successful investments made by Bankman Fried during his tenure at FTX. The company had invested $500 million in artificial intelligence company Anthropic in 2021. The boom in the AI industry has made these stocks even more valuable. Earlier this year, Ray's team sold about two-thirds of FTX's Anthropic stake for $884 million.
FTX also reached a deal to recover more than $400 million from Bankman Fried's hedge fund, Modulo Capital. FTX's lawyers also filed a lawsuit to recover funds from former executives, including Bankman Fried's parents.
Cryptocurrency experts have been expecting a big recovery from the FTX bankruptcy for months. Some opportunistic investors are buying bankruptcy debt from exchange customers for $1, hoping to make a profit once payments start. And when Bankman Fried was convicted, his lawyers said his punishment should be lighter because FTX customers would have a better chance of getting their deposits back. The judge rejected that argument.
The recovery speed in the FTX case is unusual for a bankruptcy case. In the Enron case, for example, it took about three years for the bankruptcy plan to be approved and even longer for the funds to be distributed to creditors, FTX's lawyers said in a court filing Tuesday. I wrote it down.
FTX's bankruptcy “proceeded with remarkable agility given the challenges it faced,” the filing said.
This bankruptcy also brought great benefits to the lawyers involved. As of last fall, the law firm Sullivan & Cromwell and other experts overseeing FTX litigation had charged more than $320 million in fees.
“The lawyer has completely cleared the case,” Yadav said. “This is a huge boon for crypto lawyers.”
