Judge Approves FTX, Alameda $12.7 Billion Fine, Ending 20-Month CFTC Battle
Bankman Fried's FTX reached a $12.7 billion settlement with the CFTC. | Credit: Michael M. Santiago/Getty Images
Key Takeaways
- FTX creditors are set to receive $12.7 billion in disgorgement and restitution payments.
- FTX and Alameda Research can no longer trade digital assets or act as market intermediaries.
- The exchange still faces further investigations and lawsuits against celebrities who promoted FTX, which have yet to be finalized.
- Alameda Research started depositing its WLD to CEX.
In December 2022, the US Commodity Futures Trading Commission (CFTC) filed a lawsuit against FTX, its former CEO, Sam Bankman-Fried (SBF), and its sister trading firm, Alameda Research. The regulator accused them of fraud and misrepresentation by promoting FTX.com as a digital commodity asset platform.
After nearly two years of legal troubles, FTX creditors can breathe a sigh of relief as a judge orders the defunct exchange and trading firm Alameda Research to pay billions back.
Alameda Starts Depositing WLD
On Aug. 7, US District Judge Peter Castel ordered FTX and its sister investment firm, Alameda Research, to pay creditors a total of $12.7 billion. On-chain data analysis reveals that FTX and Alameda currently possess 24.8 million WLD coins, valued at around $45.6 million.
FTX and Alameda have begun depositing these WLD coins into various centralized exchanges (CEXs), predominantly Binance. In the past 24 hours, they have deposited 204,397 WLD coins, approximately worth $352,000, to Binance.
Recent crypto data shows that the price of Worldwide (WLD) has rebounded by 7.5% in the last 24 hours, trading at $1.76 on Friday, Aug. 9, 2024. However, the price is still far from a complete recovery, as holders have experienced a nearly 85% decline over the last five months.
Long Overdue
Following a lengthy lawsuit filed by the US Commodity Futures Trading Commission (CFTC) against the pair, a judge has ordered FTX Trading and Alameda to repay creditors a hefty $12.7 billion.
As per the filing, both entities will be jointly liable for a $8.7 billion restitution obligation and a $4 billion disgorgement obligation. The settlement is a far cry from the initial demand of $52.2 billion in restitution, disgorgement, and penalties.
Furthermore, the ruling from U.S. District Judge Peter Castel states that FTX and its “related entities” are permanently barred from:
“[…]soliciting, receiving, or accepting any funds from any person for the purpose of purchasing or selling any commodity interests or digital asset commodities, including but not limited to bitcoin (BTC), ether (ETH), or tether (USDT)”
Meanwhile, an Aug. 5 filing from FTX examiner Robert J. Cleary requests more time to finalize its Phase 2 report, which is probing the role of legal services firm Sullivan & Cromwell in the FTX debacle.
FTX to Pay $12.7 Billion to Settle CFTC Charges
The settlement agreement between FTX and the CFTC includes $8.7 billion for restitution and $4 billion for disgorgement, with the regulator opting not to seek a civil monetary penalty.
According to attorneys from both sides, this settlement is a crucial component of FTX’s proposed Chapter 11 reorganization plan. Carlin R. Metzger, the CFTC’s senior trial attorney, and John J. Ray III, CEO of FTX, concur that this resolution could significantly benefit the ongoing bankruptcy proceedings since the CFTC is recognized as the largest creditor in this Chapter 11 case.
According to the deal:
“The Proposed Settlement is an integral and valuable component of the Debtors’ proposed chapter 11 reorganization plan,” stated CFTC senior trial attorney Carlin R. Metzger and FTX’s CEO John J. Ray III. It resolves ongoing litigation and disputes with one of the largest creditors of the Debtors, avoids the cost and delay of further litigation, and mitigates a significant risk of diminution of the assets available for distribution to creditors.”
The agreement aims to resolve ongoing litigation and disputes with this major creditor, avoid the costs and delays of further litigation, and prevent the potential asset loss that could be distributed to other creditors. Additionally, it indicates that the CFTC is willing to forgo its own recovery claims as long as FTX adheres to its reorganization plan.
FTX Proposes 118% Repayment to Small Creditors
The settlement between FTX and the CFTC is designed to enhance the company’s financial stability and ensure regulatory compliance. It ultimately aims to benefit creditors and customers by maximizing the funds available for distribution.
As part of its reorganization plan, FTX proposes to repay 118% of the claims to 98% of its creditors, specifically targeting those with claims under $50,000, based on the asset values in US dollars at the time of FTX’s bankruptcy filing in November 2022.
A court hearing to review and potentially approve the proposed settlement is scheduled for Aug. 6, 2024, at the Bankruptcy Court for the District of Delaware. The judge will decide whether to accept or decline the reorganization proposal.
