FTX’s 119% Asset Recovery Plan Gains Traction Amid SBF Fraud Conviction

• FTX, the collapsed cryptocurrency exchange, is moving forward with a Chapter 11 reorganization plan aiming to compensate victims and address regulatory fines arising from its downfall in November 2022.
• This plan’s progress is marked by Judge John Dorsey’s decision, which signifies a crucial advancement in the two-year-long bankruptcy procedure, with creditor voting being essential for restructuring.
• Despite receiving backing from significant customer committees, there is still a faction insisting on major amendments to the proposed plan.

FTX’s Chapter 11 proposal promises substantial asset recovery for customers and addresses compliance with regulatory obligations, aiming to resolve one of the largest crypto collapses in recent history.

FTX Promises 119% Asset Recovery for Customers

Bloomberg reports that under FTX’s restructuring proposal, most customers stand to recover 119% of their assets as of the bankruptcy filing date in November 2022. Other creditors could see returns up to 143% of their claims.

FTX’s legal representatives argue that bankruptcy law requires claims to be valued based on their worth at the bankruptcy filing date, despite any subsequent increases in cryptocurrency values.

The firm seeks feedback from its customer base, particularly those previously uninvolved, to refine the repayment plan further. Concurrently, FTX is negotiating with federal entities to potentially leverage government claims to boost customer compensation.

Settlement with IRS Highlighted

FTX has resolved a $24 billion tax liability with the US Internal Revenue Service, agreeing to pay $200 million within 60 days of the restructuring plan’s execution. This settlement, which significantly reduces the IRS’s claim, enables FTX to focus on maximizing customer recoveries.

The IRS will also receive a subordinated claim of $685 million, payable after higher-priority claims, depending on available funds. This provides a clearer path for FTX to finalize and implement its distribution strategy.

Fraud Conviction of Founder Looms Over Proceedings

Amid these developments, FTX is liquidating its assets, which mostly consist of holdings acquired through misappropriated customer funds rather than segregated digital assets. This adds complexity to the compensation framework.

Creditors have until August 16 to cast their votes on the Chapter 11 proposal, with Judge Dorsey’s approval potentially coming by October 7, based on the voting results.

Following FTX’s bankruptcy declaration in 2022, founder Sam Bankman-Fried (SBF) handed control to bankruptcy experts after facing fraud charges leading to a 25-year conviction, which he is currently appealing.

Conclusion

The Chapter 11 plan proposed by FTX marks a pivotal step towards resolving the aftermath of its sudden collapse. With the promise of substantial asset recovery for customers and settlements with regulatory authorities, FTX aims to navigate the intricate bankruptcy landscape while addressing creditor concerns. The upcoming votes and judicial review will determine the final outcome for affected stakeholders, potentially setting precedents in the evolving cryptocurrency space.