By Dietrich Knauth
NEW YORK (Reuters) – FTX received court approval of its bankruptcy plan on Monday, which will allow it to fully repay customers using $16 billion in assets recovered since the once-leading crypto exchange collapsed.
U.S. Bankruptcy Judge John Dorsey approved the wind-down plan at a court hearing in Wilmington, Delaware, saying FTX’s success made it “a model case for how to deal with a very complex Chapter 11 bankruptcy proceeding.”
The plan is built on a series of settlements with FTX customers and creditors, U.S. government agencies, and liquidators appointed to wind down FTX’s operations outside the U.S.
The settlements allow FTX to use its assets to repay customers of its crypto exchange first, before paying potentially competing claims filed by government regulators. FTX plans to repay 98% of its customers – those who held $50,000 or less on the exchange – within 60 days.
Once among the world’s top crypto exchanges, FTX collapsed after news surfaced that founder Sam Bankman-Fried took customer money to pay off risky bets made by his hedge fund, Alameda Research. Bankman-Fried was sentenced in March to 25 years in prison for stealing from FTX customers, and he has appealed his conviction.
FTX’s plan will pay its customers at least 118% of the value in their accounts as of November 2022, the date that the company filed for bankruptcy.
FTX said the result was a victory for creditors, made possible by its ability to recover cash and crypto assets that had gone missing during the company’s chaotic collapse. The company also raised additional funds by selling off other assets, including its investments in tech companies like the artificial-intelligence startup Anthropic.
“Today’s achievement is only possible because of the experience and tireless work of the team of professionals supporting this case, who have recovered billions of dollars by rebuilding FTX’s books from the ground up and from there marshaling assets from around the globe,” FTX CEO John Ray said in a statement on Monday.
Customers have had a mixed response to the plan, with many expressing disappointment that FTX’s demise caused them to miss out on a strong rebound in crypto prices since the market bottomed out in 2022. Some customers had objected to the plan, demanding higher repayments reflecting recent rises in cryptocurrency values.
David Adler, an attorney representing four objecting creditors, said that the price of a bitcoin, for example, has risen to over $63,000 from its November 2022 price of $16,000. Customers that deposited bitcoin on FTX’s exchange are finding it difficult to accept FTX’s claim that they are receiving a 100% recovery based on those lower prices of two years ago, Adler said.
FTX said it was not possible to simply return the crypto assets customers had deposited, because customers’ assets were gone, misappropriated by Bankman-Fried.
At the time of its bankruptcy filing, FTX.com held only 0.1% of the bitcoin that its customers believed they had deposited on the exchange, according to the company. One of FTX’s financial advisers, Steve Coverick, testified on Monday that it would “exorbitantly expensive” to purchase billions of crypto assets on the open market in order to repay customers with the same types of cryptocurrency they had before the bankruptcy.
As we see the conclusion of this tumultuous saga for FTX, it is clear that the path to recovery has been paved with challenges and complexities. The court approval of the bankruptcy plan marks a significant milestone in the efforts to repay customers and creditors, with the recovered assets now being used to fulfill these obligations.
FTX’s journey from being a prominent crypto exchange to facing bankruptcy due to mismanagement and fraud serves as a cautionary tale for the industry. The repercussions of founder Sam Bankman-Fried’s actions have reverberated throughout the crypto community, highlighting the importance of transparency, accountability, and regulatory compliance in the digital asset space.
While the repayment plan may not fully satisfy all stakeholders, it represents a step towards closure and resolution for those affected by FTX’s downfall. The complexities of recovering funds and assets in a global market further underscore the challenges faced by regulators and law enforcement in combating financial crimes in the digital age.
Looking ahead, the lessons learned from the FTX case can serve as a reminder of the risks inherent in the crypto industry and the importance of implementing robust safeguards to protect investors and assets. As new technologies and financial innovations continue to reshape the landscape, accountability and integrity must remain paramount to ensure the long-term sustainability and credibility of the digital asset ecosystem.
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