A US court has paved the way for billions of dollars to be reimbursed to former customers of bankrupt cryptocurrency exchange FTX.
In Wilmington, Delaware, at a courtroom hearing on Monday, Judge John Dorsey granted final approval to FTX’s reorganization plan, the terms of which had previously been presented to creditors.
“This case has the potential to serve as a model for navigating complex Chapter 11 reorganizations,” said Dorsey. “I commend all parties involved in the negotiation process.”
FTX filed for bankruptcy in November 2022 after exhausting its funds to meet the demands of customer withdrawals. The value of FTX buyer deposits, amounting to billions of dollars, has gone missing. Funds were secretly transferred to a related company, where they were squandered on reckless trading ventures, speculative business investments, debt servicing, personal loan payments, questionable political contributions, lavish real estate purchases, and other illicit activities.
A year after the collapse, FTX founder Sam Bankman-Fried stood convicted on multiple counts of fraud and conspiracy. Following her testimony against Bankman-Fried in court in September, Caroline Ellison, a key coconspirator, remained a prominent figure in the ongoing legal proceedings.
Initially mooted by John, a plan emerges that paves the way for a comprehensive refund package, coupled with a dash of intrigue, for erstwhile FTX investors—a rare display of rehabilitation commonly encountered in bankruptcy proceedings. According to Yesha Yadav, affiliate dean and chapter specialist at Vanderbilt Law School, “Anything exceeding $1.00 on the dollar is truly remarkable.” What often happens is that unsecured creditors receive pennies on the dollar if they’re lucky. The expectation is that it serves as a means to alleviate shortages.
Although the directors of the FTX property are positioned to recover billions of dollars by liquidating investments made by FTX Ventures’ business capital arm and its sister company, Alameda Research, along with other properties. Within the period since FTX filed for bankruptcy, the value of the cash remaining in their reserves has actually increased?
Below the plan, authorities agencies in the USA, including the Internal Revenue Service and the Commodity Futures Trading Commission, have agreed to suspend high-value claims against FTX until creditors are repaid. The IRS, however, will receive a $200 million upfront payment as part of the settlement.
Fairness holders, including those who may ultimately receive repayment in a chapter, could potentially reclaim a substantial portion of their initial investment – a total of $230 million – as a result of the Department of Justice’s efforts to recover funds from FTX insiders through prosecution.
Despite the exceptionally high expected restoration costs, many collectors believe they are still being shortchanged due to the flawed valuation method used for their claims.
As the FTX platform housed significant amounts of cryptocurrency assets like bitcoin, many customers found themselves in a precarious situation upon the company’s bankruptcy filing. The process known as dollarization, commonly seen during bankruptcies, has resulted in the valuation of these claims based on the cryptocurrency’s worth at the time of the filing, rather than its current value. Despite FTX’s collapse leaving the crypto market in a state of flux, its subsequent surge to record-breaking levels has sparked renewed optimism. However, it is crucial that any potential buyers carefully consider the value of their claims in today’s market, as the refund process should be recalculated to reflect the current worth of crypto assets. Despite the correct application of dollarization under the chapter’s guidelines, it remains inaccurate to state that the return is over 100 percent, notes Yadav. “For most individuals, it’s far removed from their everyday experiences.”
