FTX Creditors Set to Receive Up to $16.5 Billion in Landmark Bankruptcy Deal

In what has been a major undertaking in regards to the long-standing FTX bankruptcy case, creditors of the defunct cryptocurrency exchange are on track to receive up to $16.5 billion under a bankruptcy plan approved in the U.S. on Monday. The plan marks a significant step in resolving the financial debacle that left millions of customers around the world locked out of their accounts when the crypto giant collapsed in November 2022.

FTX’s downfall, which came after revelations of large-scale fraud orchestrated by its founder, Sam Bankman-Fried, sent shockwaves through the cryptocurrency industry. Bankman-Fried was convicted of stealing billions of dollars in customer funds to cover risky bets made by his hedge fund, Alameda Research, and was sentenced to 25 years in prison last year. Now, in a complex settlement deal, former FTX customers are expected to be made whole—at least on paper.

A Landmark Payout for Creditors

The approved plan promises former customers a recovery of about 119% of their holdings at the time of bankruptcy, according to statements from FTX. John J. Ray III, the lawyer appointed to oversee FTX’s bankruptcy and its current CEO, described the agreement as a “significant milestone” in repaying customers and resolving one of the most complicated asset distributions in history.

“Looking ahead, we are poised to return 100% of bankruptcy claim amounts plus interest for non-governmental creditors,” Ray said, referring to the unprecedented scale of the bankruptcy estate asset distribution, which spans more than 200 global jurisdictions.

Creditors are expected to receive their funds within 60 days after the plan is declared effective, although the specific date has yet to be set. The deal prioritizes FTX’s customers ahead of other unsecured creditors, including the U.S. government, a move welcomed by many but not without controversy.

Mixed Reactions from Customers

Despite the positive news, not all FTX customers are entirely satisfied. Some former account holders argue that receiving cash does not compensate for the opportunity cost of holding cryptocurrency—particularly in the case of bitcoin. Since the exchange’s collapse, the value of bitcoin has surged from under $20,000 in November 2022 to over $62,000 today. For those who held crypto assets like bitcoin, the repayment in cash feels like a far cry from what their digital holdings would be worth now.

“I had 5 bitcoins on the exchange,” said one former FTX user on a crypto forum. “Now they’re going to give me cash based on the price at bankruptcy? That’s just not fair.”

The sentiment is shared by others who believe that repayments should be made in the equivalent cryptocurrency, reflecting its current market value. However, given the complexities of managing such a large-scale bankruptcy, many acknowledge that the deal, despite its shortcomings, is better than the alternative—no compensation at all.

The Role of Caroline Ellison and Asset Recovery

Much of the progress made in recovering assets can be attributed to the testimony and cooperation of Caroline Ellison, the former CEO of Alameda Research and Bankman-Fried’s close associate. Ellison, who provided crucial insights into where FTX’s hidden assets were stashed, played a pivotal role in helping Ray’s team locate and recover between $14.7 billion and $16.5 billion worth of assets.

These assets have been gradually liquidated, including FTX’s investment in the artificial intelligence firm Anthropic, to help repay creditors. The approved plan builds on settlements with FTX customers, creditors, U.S. government agencies, and liquidators in other jurisdictions, ensuring that customers of FTX’s crypto exchange are repaid first, before competing claims from government regulators.

Prioritizing Small-Scale Customers

The plan’s structure also offers a lifeline to smaller investors. According to court documents, FTX aims to repay 98% of its customers—those who held $50,000 or less on the exchange—within 60 days of the plan’s effective date. This initiative seeks to bring closure to the vast majority of the exchange’s users, many of whom had little recourse after the exchange’s sudden collapse.

FTX’s downfall was one of the most dramatic in the history of cryptocurrency. Once a dominant player in the industry, FTX collapsed after it was revealed that customer deposits had been secretly siphoned off to cover risky investments made by Alameda Research. Bankman-Fried’s arrest, trial, and eventual conviction made global headlines and brought new scrutiny to the cryptocurrency space, underscoring the need for tighter regulation.

The Future of FTX’s Bankruptcy Case

While the plan brings hope to FTX’s customers, significant hurdles remain. The firm is still in negotiations with the U.S. Department of Justice over $1 billion in assets seized during the prosecution of Bankman-Fried. Additionally, FTX shareholders—who typically receive nothing in bankruptcy proceedings—could receive up to $230 million from these funds, as per court filings.

The resolution of the FTX case will likely influence how future cryptocurrency bankruptcies are handled, especially as the industry continues to mature. With billions of dollars at stake and customers spread across the globe, the FTX saga has been a cautionary tale about the risks of unregulated exchanges and the need for greater accountability within the digital currency ecosystem.

For now, FTX customers are cautiously optimistic. While some may feel short-changed by the payout structure, others are relieved to see any resolution at all. As the dust settles on one of the crypto industry’s largest collapses, the future of digital finance remains uncertain but ripe for innovation, transparency, and, most importantly, trust.

Adele Simmons
Financial Desk