FTX possesses billions beyond the required amount for compensating bankruptcy victims.
FTX, the cryptocurrency exchange, has emerged from its November 2022 collapse with a surprising outcome: billions of dollars more than required to compensate its customers for their losses. This development, rare in US bankruptcy proceedings, promises full recoveries for customers, along with interest.
Amid a cryptocurrency rally, including Solana, backed by FTX founder Sam Bankman-Fried, the company’s assets have flourished. Additionally, FTX has liquidated various holdings, such as a stake in Anthropic, an artificial intelligence company, further boosting its financial standing.
CEO John Ray, who assumed leadership post-collapse, expressed disbelief at the remarkable outcome, citing it as an “unbelievable result” in any bankruptcy scenario.
The robust financial position of FTX has led to a surge in the value of FTX claims, reaching 101 cents on the dollar, up from 95 cents just last week. Post-asset liquidation, FTX anticipates having approximately $16.3 billion in cash for distribution, surpassing its $11 billion debt obligation to over 2 million customers and other non-governmental creditors.
This narrative contrasts sharply with initial comparisons drawn between FTX’s collapse and infamous corporate scandals like Enron’s fraudulent downfall and Bernie Madoff’s Ponzi scheme. Earlier this year, FTX held approximately $6.4 billion in cash.
Despite creditors slated to receive full repayment plus interest, equity holders will not share in these gains, as per court filings. This outcome aligns with bankruptcy protocols where shareholders receive compensation only after all debts are settled, yet in this case, substantial claims from US regulators and the IRS are expected to nullify shareholder interests.
Major equity holders in FTX include Sequoia Capital, Thoma Bravo, Temasek Holdings Pte, and the Ontario Teachers Pension Plan, alongside notable individuals like Tom Brady and Gisele Bündchen.
The company, under restructuring advisors, proposes a fund to compensate creditors, leveraging recovered assets and a surge in cryptocurrency values. Creditors stand to gain significantly, potentially receiving up to 142% of their claims, with most expected to recover 118% of their FTX platform holdings at the time of bankruptcy.
The resurgence in cryptocurrency markets, with Bitcoin’s value quadrupling since late 2022, amplifies creditor gains. However, some creditors, particularly crypto holders like Arush Sehgal, express discontent, as their claims remain fixed to 2022 values despite substantial market appreciation since then.
FTX’s restructuring advisers outline a payout plan, aiming to conclude the Chapter 11 case. This proposal, subject to creditor approval, stands as a precedent, given the unprecedented scale of more than 2 million eligible voters among customers and creditors.
Judge John Dorsey will weigh creditor votes when deciding on plan approval later this summer, with a hearing scheduled for late June. FTX’s bankruptcy, initiated by Bankman-Fried’s closure of the platform and subsequent conviction for fraud, marks a significant chapter in cryptocurrency exchange history.
