FTX Wins Court Approval for $16.5 Billion Bankruptcy Plan to Repay Customers

FTX Wins Court Approval for $16.5 Billion Bankruptcy Plan to Repay Customers

FTX received court approval for its bankruptcy plan on Monday, paving the way for the beleaguered crypto exchange to repay customers using up to $16.5 billion in recovered assets. The decision marks a significant step in resolving one of the largest crypto collapses in history.

U.S. Bankruptcy Judge John Dorsey, presiding over the case in Wilmington, Delaware, called FTX’s plan “a model case” for handling complex Chapter 11 bankruptcy proceedings. The plan hinges on settlements with a wide range of stakeholders, including FTX customers, U.S. government agencies, and liquidators managing the exchange’s non-U.S. operations.

The approved plan prioritizes the repayment of FTX’s exchange customers, particularly those with claims of $50,000 or less, who are expected to receive 98% of their holdings within 60 days of the plan’s activation. The exact timeline for implementation remains undecided. This repayment will take place before addressing claims from government regulators, further underscoring the focus on customer restitution.

FTX’s downfall began when it was revealed that founder Sam Bankman-Fried had misused customer funds to cover losses incurred by his hedge fund, Alameda Research. Bankman-Fried was sentenced to 25 years in prison in March for fraud and theft, though he has since appealed the ruling.

In addition to repaying customers, FTX continues to negotiate with the U.S. Department of Justice over $1 billion in seized assets. FTX shareholders, typically last in line during bankruptcy proceedings, may receive up to $230 million from these seized funds, according to recent court filings.

The company estimates it will recover between $14.7 billion and $16.5 billion, potentially allowing it to pay customers at least 118% of the value of their accounts as of November 2022, when FTX filed for bankruptcy. Key U.S. agencies like the Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service (IRS) have agreed to let FTX prioritize customer repayments over regulatory fines and tax debts. Additionally, a liquidator in the Bahamas, who had previously contested FTX’s U.S. bankruptcy filing, has now agreed to cooperate.

This outcome is seen as a major win for creditors, largely due to FTX’s ability to recover assets that had gone missing in the chaos of its collapse. FTX also generated additional funds by selling off assets, including its stakes in tech companies like the artificial intelligence startup Anthropic.

“Today’s achievement is a testament to the relentless efforts of the professionals involved in rebuilding FTX from the ground up, enabling us to recover billions in assets,” said FTX CEO John Ray in a statement.

While the plan offers substantial recovery for customers, reactions have been mixed. Many customers expressed frustration that they missed out on the significant rebound in cryptocurrency prices since FTX’s collapse in 2022. Some even opposed the plan, arguing that the repayment calculations based on the 2022 crypto prices fail to account for the surge in value since then. David Adler, a lawyer representing four objecting creditors, pointed out that the price of bitcoin has skyrocketed from $16,000 in November 2022 to over $63,000 today, making the “100% recovery” claim questionable for those who held crypto assets on FTX.

FTX, however, maintained that it was impossible to return the original cryptocurrency deposits since the assets had been misappropriated by Bankman-Fried. At the time of its bankruptcy filing, FTX.com reportedly held only a fraction—0.1%—of the bitcoin its customers believed they had deposited. One of FTX’s financial advisors, Steve Coverick, testified that purchasing enough cryptocurrency to repay customers in kind would be “prohibitively expensive.”

Despite these challenges, the court’s approval of FTX’s wind-down plan marks a critical milestone in the company’s efforts to make its customers whole.