Bankruptcy Judge Approves FTX’s Repayment Plan

Highlights:

• Judge Dorsey approved FTX’s bankruptcy reorganization plan in the October 7 hearing.
• 98% of creditors will receive approximately 119% of claims in cash.
• Critics argue against cash distributions, favoring in-kind cryptocurrency payouts instead.

In an Oct. 7 hearing in the US Bankruptcy Court for the District of Delaware, Judge Dorsey approved FTX’s bankruptcy reorganization plan, concluding the two-year proceedings following the exchange’s collapse in late 2022 amid fraud allegations. Under the restructuring plan, 98% of creditors will receive around 119% of their claim value in cash within 60 days of the plan’s enactment. 

The FTX Debtors today announced that the United States Bankruptcy Court for the District of Delaware has confirmed FTX’s Plan of Reorganization. Read about it here: https://t.co/kETV0rgs0v

— FTX (@FTX_Official) October 7, 2024

The total recovered funds are estimated at $14.7 billion to $16.5 billion. These funds include liquidated assets from FTX, international branches, collaborating parties, and government agencies. John J. Ray III, FTX CEO and chief restructuring officer, stated that the Court’s confirmation of their plan marks a significant milestone in distributing cash to customers and creditors.

He added:

“Today’s achievement is only possible because of 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 marshaling assets from around the globe.”

The specific date for the plan’s implementation remains unclear. Ray III mentioned that funds will be distributed to creditors in more than 200 jurisdictions. The estate is collaborating with specialized agents to ensure safe and efficient delivery. Despite some opposition to the payment methods, the plan will move forward with cash distributions, as confirmed during Monday’s court session. 

Critics Raise Concerns Over FTX’s Repayment Plan

The plan faced criticism from Sunil Kavuri, a representative of the largest FTX creditor group. Kavuri argued that the estate should distribute cryptocurrencies in kind rather than based on the dollar value at the time of the exchange’s bankruptcy filing in 2022. Additionally, David Adler, a lawyer for some creditors, stated in court that creditors would face a significant tax bill if they received cash payouts instead of in-kind distributions.

FTX Hearing
Distribution
Our lawyer, Adler, questioned re: distribution

Debtors believe cash/cheque is better than in kind distribution

But Mosley (A&M), testified they are in discussion with 4-5 crypto distribution partners for stablecoins
Didn't recall MOUs or termsheets

— Sunil (FTX Creditor Champion) (@sunil_trades) October 7, 2024

On Monday, Adler questioned Steven P. Coverick, managing director at Alvarez & Marsal North America, LLC, about FTX’s efforts to implement in-kind distributions. He acknowledged that the topic was “discussed at length” but noted that the plan ultimately did not include those distributions.

Coverick added:

“The debtors do not have cryptocurrency that would be required to make in-kind distributions and, in fact, never had the cryptocurrency and the proportions in which customers believed they had in their accounts.”

Judge Dorsey later opposed allowing in-kind distributions during Monday’s hearing. He also reiterated that the value of FTT, the exchange’s native token, is zero. “I have no evidence today that the value of FTT tokens would be anything other than zero,” Judge stated. He further explained that “FTT tokens were inextricably intertwined with the debtors.” Since the debtor will not revive the exchange, he indicated there is no basis for the token to increase in value.

FTX Collapse and Legal Consequences for Key Figures

FTX, once a prominent crypto empire, collapsed in November 2022 after discovering that the company used customer funds for risky investments. Former CEO Sam Bankman-Fried was convicted on multiple counts of fraud and conspiracy, resulting in a 25-year prison sentence. Last month, he appealed his conviction for fraud and conspiracy. 

Former FTX CEO Sam Bankman-Fried has filed an appeal for a new trial. His lawyer accused Judge Lewis Kaplan of showing bias in the trial and preventing the submission of key evidence. SBF was previously convicted of defrauding FTX customers and investors and sentenced to 25 years…

— Wu Blockchain (@WuBlockchain) September 14, 2024

Bankman-Fried’s associates in the scheme, including Caroline Ellison, CEO of Alameda Research, have faced legal consequences for their roles in the FTX fraud. Last month, the court sentenced Ellison to two years in prison and required her to forfeit $11 billion due to her involvement in the exchange’s collapse.