In a significant development for the bankrupt cryptocurrency exchange FTX, a U.S. bankruptcy court has granted approval for the company to solicit creditor votes on a proposed liquidation plan. This plan aims to repay FTX customers in cash, despite objections from some customers who believe repayments should reflect recent increases in cryptocurrency values.
A Herculean Effort to Recover Funds
Andy Dietderich, an attorney for FTX, highlighted the immense efforts undertaken to reach this point, including settlements with several U.S. government agencies and the liquidation of various assets. These assets, bought with misappropriated customer funds, included investments in crypto and tech companies, venture funds, and real estate.
“Everybody was an involuntary investor in this crazy pool of assets, and our job was to turn it into cash,” Dietderich stated during the court hearing.
Judge Approves Voting on Wind-Down Plan
U.S. Bankruptcy Judge John Dorsey approved FTX’s proposal documents and initiated the voting process for the wind-down plan, dismissing objections from customers challenging the liquidation strategy. Since filing for bankruptcy, FTX has recovered up to $16 billion to repay customers, including approximately $12 billion in cash. The company asserts that it will repay all customer claims in full, with interest.
Disputes Over ‘Full Recovery’ Claims
Despite these assurances, some FTX customers contest the promise of a “full recovery,” arguing that repayments should reflect the current, higher cryptocurrency values rather than the lower prices from November 2022, when FTX filed for bankruptcy. Customers who had one bitcoin deposited on FTX at the time of bankruptcy will receive about $16,800 in cash, a fraction of the current bitcoin value of around $60,000.
Aggrieved customers have urged the court to reject the voting on the bankruptcy plan, deeming it fatally flawed. Some have also filed lawsuits outside of bankruptcy court, seeking rulings that FTX never owned customer deposits and must repay their full, current value.
Misleading Voting Forms?
Creditors opposing the plan argue that FTX’s proposed voting forms are misleading, claiming a full recovery with interest that doesn’t align with the actual repayment figures.
“Customers must be made aware that the plan’s ‘full recovery’ is nothing of the sort,” the creditors emphasized in their objection.
FTX’s Stance on Repayment
FTX’s CEO, John Ray, a turnaround specialist, explained that the exchange cannot return the cryptocurrency deposited by customers since those funds were stolen by former CEO and founder Sam Bankman-Fried, who is now serving a 25-year prison sentence.
“FTX.com had a massive shortfall at the time of the chapter 11 filing in November 2022 – holding only 0.1% of bitcoin and only 1.2% of the ethereum customers believed the exchange held,” Ray stated. “We cannot give tokens back that we never had.”
Ray emphasized that cash payments are the only fair method to distribute value among the diverse customer base, which held various types of cryptocurrency assets with greatly fluctuating values since the bankruptcy.
The Path Forward
FTX’s recent court filings indicate that 98% of its customers will be eligible for full repayment within 60 days of the court’s approval of its wind-down plan. This expedited payment option will cover all customers owed up to $50,000.
Creditors have until August 16 to cast their votes, with FTX aiming to secure final approval for the wind-down plan on October 7.
In summary, while FTX has made significant strides in recovering and liquidating assets to repay customers, disputes over the method and amount of repayment continue to loom large. The court’s approval to begin creditor voting marks a critical step in the ongoing efforts to resolve one of the most high-profile collapses in the cryptocurrency sector.