FTX on Monday won court approval for its bankruptcy plan, which will allow it to fully repay clients using up to $16.5 billion (roughly Rs. 1,38,550 crore) in assets recovered from the collapse of the once-leading crypto exchange.
U.S. Bankruptcy Judge John Dorsey approved the closure plan at a court hearing in Wilmington, Delaware, saying FTX’s success has made it “a model for dealing with a very complex Chapter 11 bankruptcy.”
The plan is based on a series of settlements with FTX’s customers and creditors, US government agencies and liquidators appointed to wind up FTX’s non-US operations.
The settlements allow FTX to use its assets to repay customers of its crypto exchange first, before paying potentially competing claims brought by state regulators. FTX plans to repay 98 percent of its clients — those who had $50,000 (roughly Rs. 41.9 lakh) or less in the stock market — within 60 days of the plan’s effective date, which has yet to be determined.
Once among the world’s top crypto exchanges, FTX collapsed after news broke that founder Sam Bankman-Fried took client money to pay off risky bets made by his hedge fund Alameda Research. Bankman-Fried was sentenced to 25 years in prison in March for stealing from FTX customers and has appealed his conviction.
FTX is still in negotiations with the US Department of Justice over $1 billion (roughly Rs. 8,396 crore) seized by the government during the Bankman-Fried prosecution. FTX shareholders, who would otherwise receive nothing in the bankruptcy proceedings, could receive up to $230 million (roughly 1,931 crore rupees) from the funds seized by the DOJ, according to court documents.
FTX estimated it would have between $14.7 billion (roughly Rs. 1,23,430 crore) and $16.5 billion (roughly Rs. 1,38,538 crore) available to repay creditors, enough to pay customers at least 118 percent of the value of their accounts from November 2022, the date the company filed for bankruptcy.
US government agencies, including the Commodity Futures Trading Commission and the Internal Revenue Service, have agreed to allow FTX to prioritize repayments to customers over fines and tax debts, and a liquidator appointed in the Bahamas has agreed to work with FTX after previously challenging the company’s authority to file for bankruptcy in the US.
FTX said the result was a victory for creditors, enabled 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 thanks to the experience and tireless work of the team of professionals supporting this case, who have recovered billions of dollars by rebuilding FTX’s books from the ground up and from there sourcing assets from around the world,” FTX CEO John Ray said. in a statement on Monday.
Buyers had a mixed reaction to the plan, with many expressing disappointment that the FTX break-up had caused them to miss out on the cryptocurrency’s strong price recovery since the market bottomed in 2022. Some users opposed the plan, demanding higher repayments that reflected the cryptocurrency’s recent rise in value.
David Adler, a lawyer representing the four objecting creditors, said the price of bitcoin, for example, has risen to more than $63,000 (roughly Rs 52.8 lakh) from its November 2022 price of $16,000 USD (roughly Rs. 13.4 lakh). Users who deposited bitcoin on FTX’s exchange are finding it difficult to accept FTX’s claim that they are getting a 100% return based on those lower prices from two years ago, Adler said.
FTX said that it was not possible to simply return the crypto assets deposited by clients because the clients’ assets disappeared, embezzled 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 advisors, Steve Coverick, testified Monday that it would be “excessively expensive” to buy billions of crypto assets on the open market to return customers with the same types of cryptocurrencies they had before the bankruptcy.
© Thomson Reuters 2024
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