Bitcoin
FTX Clients Prepared to Recover All Funds Lost in Collapse
Customers of the failed cryptocurrency exchange FTX are prepared to recover all the money they lost when the company went bankrupt in 2022 and receive additional interest, the company’s bankruptcy lawyers said Tuesday.
The announcement was a milestone in the attempt to track down the $8 billion in client assets that disappeared when FTX imploded practically overnight, triggering a crisis in the crypto industry. Under a plan filed in federal bankruptcy court in Delaware, virtually all of FTX’s creditors, including hundreds of thousands of ordinary investors who used the exchange to buy and sell cryptocurrencies, would receive cash payments equivalent to 118% of the assets they held. stored in FTX. said the lawyers.
Those payments would come from a pool of assets that FTX’s lawyers had gathered in the 17 months since the exchange’s collapse, the lawyers said. They drew on a wide range of sources, including digital currencies that FTX still owned when it filed for bankruptcy and company assets, such as shares in start-ups, that could be sold to bidders.
The amount recovered by FTX is “generally quite unprecedented,” said Yesha Yadav, a law professor at Vanderbilt University. “That’s a really surprising thing for a major bankruptcy.”
The plan comes with a caveat. The amount owed to customers was based on the value of their holdings at the time of FTX’s bankruptcy in November 2022. This means that customers will not reap the benefits of a recent surge in the crypto market that sent the Bitcoin price to a record. A customer who lost a Bitcoin when FTX imploded, for example, would be entitled to less than $20,000, even though a Bitcoin is now worth more than $60,000.
It will take months for payments to begin. The plan requires approval from the federal judge overseeing FTX’s bankruptcy, John T. Dorsey. If creditors raise any objections to the plan, it could extend the deadline.
“The timing of the recovery is still a big question mark,” said Matthew Sedigh, chief executive of Xclaim, a platform for creditors to negotiate bankruptcy filings. “Even if the recovered value is better than expected, charging these values two years from now is a kind of slap in the face.”
Still, it seemed unlikely that customers would get their money back when FTX collapsed. Before its implosion, customers used the exchange as a marketplace to buy and sell digital currencies and stored billions of dollars worth of cryptocurrencies on the platform.
Following FTX’s bankruptcy, its founder and chief executive, Sam Bankman-Fried, stepped down, handing over control to John J. Ray III, a veteran of corporate turnarounds who oversaw the dismantling of Enron, the failed energy company. in 2001.
Mr. Bankman-Fried was later convicted of a comprehensive fraud in which he diverted billions of dollars in FTX client savings to finance venture investments, political donations and other expenditures. He was condemned in March to 25 years in prison.
After taking over, Mr. Ray described the cryptocurrency exchange as the biggest mess he had already seen it. Over the next few months, he and his team began the painstaking process of locating the missing property.
Some of the recoveries resulted from successful investments Mr. Bankman-Fried made during his tenure at FTX. In 2021, the company invested US$500 million in artificial intelligence company Anthropic. A boom in the AI industry has made these stocks much more valuable. This year, Ray’s team sold about two-thirds of FTX’s stake in Anthropic for $884 million.
FTX also reached an agreement to recover more than $400 million in Capital Module, a hedge fund financed by Mr. Bankman-Fried. And FTX lawyers have filed lawsuits to recover funds from former company executives and others, including Mr. country.
Crypto experts have been expecting significant recoveries from the FTX bankruptcy for months. Some opportunistic investors They bought bankruptcy filings from exchange customers for pennies on the dollar, hoping to profit when payments begin. And when he was convicted, Bankman-Fried’s lawyers said he should receive a lighter punishment because FTX customers would likely get their deposits back. A judge rejected that argument.
The speed of recoveries in the FTX case is unusual for a bankruptcy. In the case of Enron, for example, it took about three years for a bankruptcy plan to be approved and many more years for funds to be distributed to creditors, FTX’s lawyers wrote in the court filing Tuesday.
FTX’s bankruptcy “proceeded with notable alacrity given the challenges faced,” the filing said.
The bankruptcy was also highly profitable for the lawyers who worked on it. Last fall, the law firm Sullivan & Cromwell and other experts overseeing the FTX case had loaded more than US$320 million in fees.
“Lawyers made a lot of money from this,” Yadav said. “This is a huge bonanza for crypto lawyers.”