FTX has been authorized to repay billions in settlements after the bankruptcy plan is OK

FTX received court approval of its bankruptcy plan on Monday, which will allow it to fully repay customers using up to $16.5 billion in assets recovered from the collapse of the former cryptocurrency exchange.

U.S. Bankruptcy Judge John Dorsey approved the liquidation 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 bankruptcy proceeding 11”.

The plan is based on a series of agreements with FTX’s customers and creditors, US government agencies and liquidators appointed to wind down FTX’s non-US operations.

The agreements allow FTX to use its assets to reimburse customers of the cryptocurrency exchange, before paying potentially competing demands from government regulators. FTX plans to refund 98 percent of its customers — those who held $50,000 or less in the exchange — within 60 days of the plan’s effective date, which has yet to be determined.

Once among the top cryptocurrency exchanges in the world, FTX collapsed after news broke that founder Sam Bankman-Fried took money from clients 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 has appealed his conviction.

FTX continues to discuss with the US Department of Justice over $1 billion the government seized during the Bankman-Fried prosecution. FTX shareholders, who would normally receive nothing in a bankruptcy proceeding, could receive up to $230 million in funds seized by the DOJ, according to court documents.

FTX estimated it would have between $14.7 billion and $16.5 billion available to repay creditors, enough to pay customers at least 118 percent of the value of their accounts starting in November 2022, when the company filed for bankruptcy.

US government agencies, including the Commodity Futures Trading Commission and the Internal Revenue Service, have agreed to let FTX prioritize refunding customers over fines and tax liabilities, and a liquidator appointed in the Bahamas has agreed to work with FTX after previously challenged the company’s authority to declare bankruptcy. in the USA

FTX said the outcome was a win for creditors, made possible by its ability to recover cash and crypto assets that disappeared during the company’s chaotic collapse. The company has also raised additional funds by selling other assets, including its investments in technology companies such as 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 the FTX books from scratch and from there pooling assets from around the globe,” FTX CEO John Ray said in a statement Monday.

Clients had a mixed response to the plan, with many expressing disappointment that FTX’s demise had caused them to miss out on a strong rally in crypto prices since the market bottomed out in 2022. Some clients opposed the plan, demanding larger refunds, reflecting recent repayments. increases in cryptocurrency values.

David Adler, a lawyer representing four opposing creditors, said the price of one bitcoin, for example, has risen to more than $63,000 from its November 2022 price of $16,000. Customers who deposited bitcoin on the FTX exchange are finding it hard to accept FTX’s claim that they are getting a 100 percent recovery based on those lower prices from two years ago, Adler said.

FTX said it is not possible to simply return the crypto assets that customers have deposited because the customer assets have disappeared, misappropriated by Bankman-Fried.

At the time of the bankruptcy filing, FTX.com held just 0.1 percent of the bitcoin its customers believed they had deposited into the exchange, according to the company. One of FTX’s financial advisers, Steve Coverick, testified on Monday that it would be “exorbitantly expensive” to purchase billions of crypto assets on the open market to repay customers with the same types of cryptocurrencies they had before the bankruptcy.

(Reporting by Knauth in New York; Editing by Alexia Garamfalvi and Matthew Lewis)