Despite its bankruptcy, the trading platform FTX will be able to refund depositors funds.

The company FTX collapsed in 2022, causing significant losses and resulting in its founder being sentenced to a quarter century in prison.

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May 14, 2024 - 20:01 Updated: May 14, 2024 - 20:02
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Despite its bankruptcy, the trading platform FTX will be able to refund depositors funds.
FTX platform

The company FTX collapsed in 2022, causing significant losses and resulting in its founder being sentenced to a quarter century in prison.

After depositors lost their funds, it seems that the platform will now be able to reimburse them with equivalent value in kind.

The bankrupt FTX exchange has submitted a plan to distribute between $14.5 and $16.3 billion to the company's creditors.

Almost all account holders on the bankrupt cryptocurrency exchange FTX are poised to receive cash payments exceeding 100% of their official claims, according to the restructuring plan submitted to the court on Tuesday night.

FTX stated that it has raised nearly $15 billion, mostly from selling capital investments made by the exchange and its subsidiary, Alameda Research. It indicated that this amount will pay 118 cents on the dollar to 98% of creditors with claims of $50,000 or less. The remaining creditors will receive at least 100 cents on the dollar.

The FTX exchange collapsed in November 2022, resulting in a gap in customer accounts of billions of dollars. The failure shook the cryptocurrency space and led to the founder, Sam Bankman-Fried, being convicted of fraud and sentenced to 25 years in prison.

John Ray III, who assumed the presidency of FTX after it filed for bankruptcy, said on Tuesday: "We are pleased to be in a position to propose a Chapter 11 plan that provides for the full repayment of bankruptcy claims plus statutory interest to non-governmental creditors."

Ray also publicly described the recently managed FTX entity as a "crime scene," amidst allegations that Bankman-Fried may have looted customer accounts for personal spending and extravagant trading, a scheme that unraveled as digital asset prices lost momentum during 2022, in what was dubbed the "crypto winter."

FTX stated that the total assets converted to cash will range between $14.5 and $15.8 billion, highlighting that among the company's most attractive assets was its stake in the AI startup Anthropic, which sold shares for nearly $900 million this year.

This strategic move reflects FTX's efforts to liquidate assets and fulfill its obligations to creditors following its bankruptcy. The sale of Anthropic shares underscores the value FTX is unlocking to meet its financial commitments, demonstrating a proactive approach to restructuring.

It's worth mentioning that the restructuring plan garnered support from all major creditor constituencies of FTX, including a $200 million cash settlement for a $24 billion claim brought against the group by the Internal Revenue Service (IRS), the U.S. tax collection agency.

This settlement reflects a significant step in resolving FTX's financial obligations and signals cooperation with governmental authorities in addressing outstanding liabilities.

After the relevant bankruptcy court approves the newly proposed plan, creditors must vote on the terms before the court holds a final hearing to formally confirm it. The redemption processes depend on the prices of cryptocurrencies as of the time of the bankruptcy filing. It's worth noting that Bitcoin, the most widely traded cryptocurrency, had dropped by over 50% in value in the six months leading up to November 2022. Since then, its price has multiplied several times, meaning depositors could have potentially earned a substantial profit had they not lost their deposits in FTX, and even the current compensation may not fully cover the profit they could have made.

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