FTX to repay customers more than they lost

Dive Brief:

Defunct cryptocurrency exchange FTX plans to return funds, and then some, to nearly all of its customers, the company said this week.
FTX owes creditors about $11.2 billion, according to a Tuesday court filing, and the company projects that it has between $14.5 billion and $16.3 billion available to distribute to them. The company filed its amended reorganization plan Tuesday, which is subject to court approval, FTX said in a news release the same day.
About 98% of FTX’s creditors are expected to receive about 118% of the amount of their allowed claims, according to FTX’s plan. That group includes customers whose claims total $50,000 or less.

Dive Insight:

FTX customer funds have been inaccessible since the company filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware in November 2022.

FTX’s plan would clear up disputes with governmental and private stakeholders “without costly and protracted litigation,” the company said in the release. A bankruptcy court hearing on the dispersion of FTX assets is scheduled for June 25.

To collect the funds needed to repay customers, FTX sold a handful of assets, including investments held by FTX Ventures or hedge fund Alameda, the release said.

Because FTX had “a massive shortfall” at the time of the bankruptcy filing — holding 0.1% of the bitcoin and 1.2% of the Ethereum customers believed it held – “Debtors have not been able to benefit from the appreciation of these missing tokens during the chapter 11 cases,” the release said. “Instead, the Debtors have had to look to other sources of recoverable value to repay creditors.”

The amount the failed crypto exchange was able to recover is “in general pretty unheard of,” Yesha Yadav, Vanderbilt University law professor, told The New York Times. “That’s something that is really quite astonishing for a major bankruptcy.”

After paying claims in full, FTX’s plan accounts for supplemental interest payments to its creditors, as long as funds remain, the court filing said. Additionally, there may be an opportunity “for certain creditors to receive additional payments through the Supplemental Remission Fund,” FTX said in the release.

John J. Ray III, FTX’s CEO and chief restructuring officer, thanked customers and creditors for their patience during the process. “We are pleased to be in a position to propose a Chapter 11 plan that contemplates the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors,” Ray said in the company’s release.

FTX founder and former CEO Sam Bankman-Fried was found guilty on seven counts of fraud and conspiracy last November; in March, he was sentenced to 25 years in prison. He has filed to appeal his conviction and sentence.