FTX’s bankruptcy is yielding an unexpected outcome and creditors could receive up to 142% of what they are owed. This remarkable recovery is due to FTX’s asset liquidation and the recent cryptocurrency boom.
When the cryptocurrency market was experiencing a massive comeback in March, we made a joke about the creditors of Sam Bankman-Fried’s bankrupt exchange, FTX, and predicted that they would get 200% of their claims back.
We were right, as it turns out—as is often the case in the “new abnormal”—because most creditors, or approximately 98% of them, would receive 118% of what they had on the FTX platform on the day the company filed for Chapter 11 bankruptcy, according to the most recent reorganization plan that the bankrupt FTX filed on Tuesday. Remarkably, up to 142% of what is owed to some creditors will be recovered. After court permission, claims will be paid back in cash, however, disbursements won’t happen for several months while FTX works through the bankruptcy case’s latter stages.
As compensation “for the time value of their investments,” other non-governmental creditors would receive 100% of their claims returned under the plan, plus an additional 9% interest. The Delaware bankruptcy court that is in charge of the bankruptcy case has the final say on whether to approve the arrangement.
According to Coindesk, the proposed reimbursements exceed the FTX estate’s prior projections, which stated in October that it only intended to return 90% of client assets. This is still a considerable amount for a bankruptcy when most predicted recoveries would be almost nonexistent. John Jay Ray III, the CEO of FTX as of January, updated that projection and informed the court that he anticipated being able to reimburse clients in full.
How, therefore, did FTX creditors, who usually earn pennies on the dollar for their shares, get so lucky that the majority of them will benefit financially after the bankruptcy? Simply put, as we hinted in March, FTX has profited from a historic cryptocurrency rally, which has included Solana, a token strongly backed by FTX founder and convicted fraudster Sam Bankman-Fried. Some have questioned whether Solana’s incredible rise—a B-grade token that typically crashes every few months and is generally derided in the crypto community—wasn’t just another example of market manipulation intended to generate recoveries of 100% or more.
To raise the money needed to cover the claims, other valuable sources, such as investments made by FTX and Alameda Research (such as its 8% ownership in AI firm Anthropic, which was sold in pieces to institutional investors for $884 million in March), have been liquidated.
“In any bankruptcy, this is just an unbelievable result,” said FTX Chief Executive Officer, John Ray, who took over the firm when it collapsed.
The FTX estate stated in a press release on Tuesday that it anticipates having between $14.5 and $16.3 billion in cash available for distribution by the time a Delaware bankruptcy court accepts a plan. This is the outcome of a year and a half of assembling and liquidating the company’s dispersed assets worldwide.
“As previously disclosed, FTX.com had a massive shortfall at the time of the Chapter 11 filing in November 2022 – holding only 0.1% of the Bitcoin and only 1.2% of the Ethereum customers believed it held,” the press release stated. “Accordingly, Debtors have not been able to benefit from the appreciation of these missing tokens during these Chapter 11 cases.”
Several complaints from authorities and government organizations, such as the IRS and Commodity Futures Trading Commission (CFTC), would also be resolved by FTX’s new restructuring plan.
In exchange for a $200 million cash payment and a $685 million subordinated claim that won’t be paid out until after all creditors and other governmental bodies have been paid, the IRS agreed to settle its $24 billion in claims.
As reported by GreatGameIndia earlier, during an April 12 last year hearing in the United States Bankruptcy Court for the District of Delaware, lawyers representing FTX with Sullivan & Cromwell said that the crypto firm had recovered roughly $7.3 billion in liquid assets. They considered rebooting the exchange, but it was later abandoned in favor of repaying its customers and creditors.
In exchange for FTX users and investors receiving their full payment plus interest, the CFTC and other unidentified government claimants consented to have their claims deemed subordinate. The press statement states that there are also plans to establish a special fund to provide “supplemental restitution” to specific clients and creditors, although the specifics of this arrangement have not yet been established.
June is the date of the hearing to go over the suggested plan.
Sam Bankman-Fried, the former CEO of FTX and convicted fraudster, has previously tried to cite the estate’s capacity to reimburse clients in full as proof that the demise of his exchange caused “zero” harm to its clientele. Bankman-Fried’s attorneys contended, in part because clients would receive their full refund, that their client ought to receive a low term prior to his sentencing in March.
Remarkably, had it not been for the implosion of Terra-Luna “stablecoin” precisely two years prior, which set off a chain reaction of liquidations throughout the cryptocurrency world, culminating in a 50% decline in bitcoin within a single month in May and June of 2022, not only would FTX remain afloat, but SBF would also be among the wealthiest individuals on the planet freely.
In a letter to the court, Ray and several other FTX creditors contended that just because the estate was able to gather enough money to compensate his victims—the product of “tens of thousands of hours… spent digging through the rubble of Mr. Bankman-Fried’s sprawling criminal enterprise to unearth every possible dollar, token, or other asset”—does not absolve him of criminal responsibility for his actions.
Bankman-Fried received a 25-year prison term. He intends to challenge both his conviction and sentence. In hindsight, he might receive a lighter sentence given that people who held money in his bankrupt exchange received up to a 42% return.
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