Nearly All FTX Creditors Will Get 118% of Their Funds Back in Cash, Estate Says in New Plan

According to the proposed scheme, non-governmental creditors are expected to receive 100% of their initial claims, along with an additional 9% interest as remuneration for the period their funds were invested. However, this arrangement is yet to be endorsed by the Delaware bankruptcy court handling the insolvency proceedings.

The projected payouts from FTX surpass the initial expectations set by the estate in October, who predicted they would only recover 90% of customer funds. However, FTX’s current CEO, John J. Ray III, adjusted that assessment in January and informed the court that he believed it was possible to fully repay customers instead.

Despite the crypto market’s bounce back following FTX’s collapse and bankruptcy, which left many disgruntled FTX customers unable to capitalize on the price surge while their funds were frozen in bankruptcy proceedings, the estate asserts that this market recovery is not the primary reason for its substantial cash reserves.

As a crypto investor following the FTX case, I can tell you that according to the recent press release on Tuesday, the FTX estate anticipates having between $14.5 and $16.3 billion in cash ready for distribution once a bankruptcy court in Delaware approves the plan. This substantial amount is the result of an intensive process over the past year and a half, during which the company’s assets were gathered from various locations worldwide and liquidated.

As a crypto investor following the FTX.com case, I understand that when they filed for Chapter 11 bankruptcy in November 2022, there was a significant discrepancy between the reported holdings and the actual ones. At that time, it was revealed that FTX held only 0.1% of the Bitcoin and 1.2% of the Ethereum that their customers believed they had in their possession. Consequently, during these bankruptcy proceedings, FTX has been unable to reap the benefits of the price increases for those missing tokens.

FTX and Alameda Research’s valuable assets, including their 8% stake in AI company Anthropic, which was worth $884 million after being sold to institutions in March, have been sold to obtain cash for repaying creditor claims.

See also: Bankers Are Lining Up Buyers for FTX’s 8% Stake in Anthropic

FTX’s proposed restructuring plan aims to resolve various claims from regulatory bodies such as the Internal Revenue Service (IRS) and the Commodity Futures Trading Commission (CFTC) in a clear and straightforward manner.

The Internal Revenue Service (IRS) reached an agreement to settle its $24 billion worth of claims, costing them a $200 million cash payment upfront. Additionally, they will issue a $685 million subordinated claim once all other creditors and relevant governmental entities have been paid in full.

The Commodity Futures Trading Commission (CFTC) and other undisclosed government entities have consented to ranking their claims below those of FTX users and investors on the condition that these individuals are fully compensated with accrued interest. Additionally, there is a proposed establishment of a separate fund to provide “extra compensation” to specific customers and creditors, as stated in the press release. However, the particulars of this arrangement remain unspecified.

A hearing to discuss the proposed plan is scheduled for June.

The specter of Sam Bankman-Fried

Previously, Sam Bankman-Fried, the former CEO of FTX and a convicted fraudster, argued that the fact the estate could repay customers in full indicated minimal damage to clients from the exchange’s collapse.

Prior to his sentencing in March, Bankman-Fried’s legal team made the case for leniency, pointing out that customers would be fully reimbursed.

See also: Sam Bankman-Fried Agrees to Help FTX Investors Go After Celeb Promoters

Ray, like many other FTX creditors, petitioned the court, asserting that the estate’s capacity to gather sufficient funds to repay his affected parties doesn’t necessarily imply that his actions were lawful. For countless hours – estimated in the tens of thousands – were invested by him in meticulously sifting through the remnants of Sam Bankman-Fried’s intricate criminal enterprise, with the ultimate goal of recovering every potential dollar, token, or other asset.

Bankman-Fried was sentenced to 25 years in prison. He plans to appeal his sentence and conviction.

Edited by Daniel Kuhn.