A US judge has cleared the way for bankrupt cryptocurrency exchange FTX to refund billions of dollars to former customers.
At a court hearing in Wilmington, Delaware, on Monday, Judge John Dorsey gave final approval to FTX’s restructuring plan, which had previously submitted terms to creditors and passed in a landslide.
“I think this is a model case for how to deal with a very complex Chapter 11 process,” Dorsey said. “I applaud everyone involved in the negotiation process.”
FTX filed for bankruptcy in November 2022 due to lack of funds to process customer withdrawals. Billions of dollars worth of FTX customer deposits went missing. That money, a jury later found, was funneled to affiliated companies and spent on risky deals, venture investments, debt repayments, personal loans, political contributions, luxury real estate and other illegal transactions.
A year later, FTX founder Sam Bankman Freed was convicted of multiple counts of fraud and conspiracy and sentenced to 25 years in prison. In September, co-conspirator Caroline Ellison was sentenced to two years in prison after testifying against Bankman Freed at trial.
The FTX bankruptcy plan, first proposed in May, provides a path to full refunds, plus interest, for former FTX customers, a level of recovery rarely seen in bankruptcy. “Generally speaking, anything over 100 cents on the dollar is almost miraculous,” says Iesha Yadav, associate dean at Vanderbilt University School of Law and a bankruptcy expert. “If you’re lucky, it tends to happen that unsecured creditors get a few cents on the dollar. That’s the scarcity process, hopefully.”
But in this case, managers of FTX Real Estate are hoping to recover billions of dollars by liquidating investments made by the exchange’s venture capital arm, FTX Ventures, and its sister company Alameda Research, along with other assets. was completed. Meanwhile, the rise in cryptocurrency prices since FTX filed for bankruptcy has increased the value of coins left in exchange vaults.
Under the plan, U.S. government agencies, including the Internal Revenue Service and the Commodity Futures Trading Commission, agreed to suspend large claims against FTX until creditors are repaid (although the IRS said the $200 million You will receive an advance payment (as part of the settlement).
Even the FTX stockholders who are typically the last to be paid back in bankruptcy will receive a portion of their initial investment (up to $230 million between them) paid for using funds recovered by the Department of Justice through the prosecution of FTX insiders. ) is in a position to recover. .
But despite unusually high recovery expectations, some creditors believe they are still getting a poor deal because of the way their debts are valued.
Many customers held crypto assets such as Bitcoin on the FTX platform, but through a process called dollarization, which is common in bankruptcies, their claims were instead repaid by the price of those assets on the date of the bankruptcy filing. A dollar value was assigned based on The cryptocurrency market was in the doldrums when FTX fell, but has since hit new highs. This means that some customers’ claims could be worth much more if refunds were mapped to the current value of their crypto assets. So while dollarization is appropriate under the Bankruptcy Code, “it’s wrong to say it’s more than 100%,” Yadav said. “For the average person, that’s a long way off.”
