FTX draft bankruptcy plan could see cash for creditors

FTX draft bankruptcy plan could see cash for creditors
But the size of the pool of claims means they are unlikely to get back what they invested.
AUG 01, 2023
By  Bloomberg

FTX Group unveiled a draft creditor-repayment plan as part of its bankruptcy that calls for settling customer claims in cash and wiping out its digital token FTT. 

The plan — which FTX expects to amend based on feedback from stakeholders — proposes valuing customer claims in US dollars as of the date it went bankrupt and repaying them by selling assets tied to various silos of the business, court papers show. FTX also still hasn’t ruled out rebooting an offshore exchange, according to the filings. 

Three so-called recovery pools will guide creditor repayments. They include assets linked to FTX.com customers, assets linked to FTX US customers and assets not clearly tied to the exchanges, court papers show. Almost every proposed creditor class is deemed impaired, meaning the company expects they will not be made whole.

The plan calls for giving no recovery on account of FTT tokens due to their “equity-like characteristics,” advisers for FTX wrote in the filings. Equity is almost always wiped out in US bankruptcy reorganizations. 

PLAN IN 'INFANCY'

FTX emphasized that the plan is still in its infancy and subject to change. The draft calls for allowing seven classes of creditors to vote on the plan, including FTX.com customers, FTX US customers and nonfungible token holders. 

“We are pleased today to deliver on our commitment to file the plan at this relatively early stage,” FTX Chief Restructuring Officer John J. Ray III said in a statement. The company intends to collaborate with creditors in the coming months and file an amended plan in the fourth quarter of this year, he said.

The draft “provides an initial construct for a global settlement and good-faith compromise of an exceptionally large and complicated collection of claims,” according to the court filing.

Among outstanding questions are estimates of creditor recoveries, the priority to be assigned to exchange shortfall claims and the decision and manner in which the FTX.com exchange is sold or reorganized, the filing indicated.

Chaotic Fall

Sam Bankman-Fried’s FTX empire fell apart last November, stoking turmoil in the crypto sector and spurring officials in the US and elsewhere to tighten regulatory oversight of digital assets.

FTX’s collapse included a crash in its native coin, FTT. The token, once worth over $80, is up some 10% in the past 24 hours to $1.50, CoinGecko data shows.

The company’s new management said in a June report that the FTX.com exchange owed customers approximately $8.7 billion when it filed for bankruptcy. More than $6.4 billion of the deficit was in the form of fiat currency and stablecoins that had been misappropriated, the report alleged.

The management team at the time said it had made “substantial progress” in securing assets and has recovered about $7 billion in liquid assets so far. 

Bankman-Fried has rejected an array of charges and faces a trial in October. 

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.