FTX victims could recoup total losses plus interest

Cryptocurrency exchange FTX has amassed billions of dollars more than it needs to cover what customers lost in its November 2022 collapse, setting them up to receive full recoveries under the company’s bankruptcy.

The extra cash will be used to pay interest to the company’s more than 2 million customers, marking a rare outcome since creditors typically receive just pennies on the dollar in US bankruptcies.

“In any bankruptcy, this is just an unbelievable result,” said FTX Chief Executive Officer, John Ray, who took over the firm when it collapsed into bankruptcy. 

Once it finishes selling all of its assets, the company will have as much as $16.3 billion in cash to distribute, according to a company statement. It owes customers and other non-governmental creditors about $11 billion. 

Although all debts will be paid in full, plus interest, nothing will be leftover for equity holders, according to court documents filed Tuesday evening in federal court in Wilmington, Delaware, where the FTX case is being handled. 

Depending on the type of claim they hold in the case, some creditors could recover as much as 142% of what they are owed. The vast majority of customers, however, will likely get paid 118% of what they had on the FTX platform the day the company entered Chapter 11 bankruptcy.

The company, now run by restructuring advisers, has also proposed setting up a fund to pay some creditors, including those who lent FTX crypto, with money that otherwise would have gone to government regulators.

Payouts are likely several months away, as FTX winds its way through the final stages of the bankruptcy case. 

Earlier this year, the company had about $6.4 billion in cash. The increase is due mostly to a general spike in prices for various cryptocurrencies, including Solana, a token heavily backed by convicted fraudster and FTX founder Sam Bankman-Fried. The company has also sold dozens other assets, including various venture-capital projects like a stake in the artificial-intelligence company Anthropic.

The latest figures underscore the surprising outcome for FTX, whose collapse drew comparisons to Enron Corp.’s fraud-fueled downfall and the unraveling of Bernie Madoff’s ponzi scheme. 

But restructuring advisers have since been tracking down the company’s assets and untangling a web of accounts scattered around the world. Those recoveries have been given a massive jolt by the crypto rebound, which has caused the price of Bitcoin to roughly quadruple since late 2022.

In a document filed Tuesday, restructuring advisers laid out new details of their proposal to distribute the cash to creditors and end the Chapter 11 case. Known as a disclosure statement, the document is designed to help creditors vote on the proposed payout plan.

US Bankruptcy Judge John Dorsey will take that vote into consideration when he decides whether to approve the plan sometime later this summer. Dorsey is scheduled to hold a hearing in late June on the disclosure statement and the voting procedures.  

FTX filed bankruptcy in November 2022 after Bankman-Fried shut down the company’s crypto-trading platform and handed control to insolvency experts. Bankman-Fried was later convicted of fraud.

The case is FTX Trading Ltd., 22-11068, US Bankruptcy Court for the District of Delaware.

Copyright Bloomberg News