FTX Counters Creditors’ Control Bid, Labels UCC’s Investment Plan “Bad Idea” Amidst FTX 2.0 Restructuring

FTX Counters Creditors’ Control Bid, Labels UCC’s Investment Plan “Bad Idea” Amidst FTX 2.0 Restructuring

In the ongoing FTX restructuring saga, debtors have criticized traders and market makers associated with the Official Committee of Unsecured Creditors (UCC) for their bid to gain control over assets. The tension escalates as the UCC proposes a move to invest approximately $2.6 billion from cash reserves into short-term Treasuries, which FTX debtors have vehemently labeled a “bad idea” within the framework of the FTX 2.0 draft restructuring plan.

Recent legal filings, dated August 9, reveal FTX’s forceful response to UCC’s statement regarding the draft reorganization plan and term sheet. FTX strongly rebukes the UCC for their attempts to seize control over the assets of the debtors, particularly highlighting the UCC’s proposal to channel the aforementioned cash reserves into short-term Treasuries. This move is intended to offset professional fees that could reach up to $330 million.

Conflicts have arisen between the UCC and FTX debtors, fueled by creditors’ allegations of inadequate consultation and FTX’s substantial financial losses during the bankruptcy filing period. Adding to the complexity, the U.S. Securities and Exchange Commission (SEC) has expressed frustration over the lack of engagement and unprofessional conduct exhibited by certain UCC members.

In an attempt to navigate these intricate dynamics, the debtors have extended an olive branch, expressing their hope that UCC members will engage in productive negotiations. They have called for face-to-face discussions, alongside representatives of the Ad Hoc Committee, customers, and other stakeholders with differing perspectives, in the pursuit of an outcome that benefits all those affected by FTX’s decline.

Amidst these developments, FTX’s restructuring team has managed to recover around $7 billion from the liquid assets, down from the $8.7 billion owed to customers when the exchange initially filed for bankruptcy.

In response to FTX’s recent legal filings, certain creditors and experts have criticized the debtors, accusing them of prolonging the restructuring process and dismissing UCC statements.

As the situation evolves, debtors have unveiled a strategic plan for the relaunch of FTX 2.0. FTX CEO John Ray is at the helm of this endeavor, seeking to finalize settlements and pending wage payments as prerequisites for the launch. However, Kraken CEO Jesse Powell has expressed skepticism, deeming FTX 2.0 “worse than starting from scratch.” Powell cites the absence of a team, requisite technology, necessary licenses, and a tarnished brand as major impediments.

Simultaneously, FTX has filed a motion to dismiss the Chapter 11 bankruptcy case involving FTX Exchange FZE (FTX Dubai), arguing that the exchange never actually commenced its intended crypto-related services for investors.