Bankrupt crypto exchange FTX has recently unveiled a revised strategy aimed at distributing 90% of the funds it’s managed to recover to its former customers.
FTX is slated to submit this plan to a U.S. bankruptcy court by December 16th, but this doesn’t guarantee a full 90% recovery for their losses. However, it is expected that the former exchange will submit its proposal to a U.S. bankruptcy court on time.
Sam Bankman-Fried, the former majority shareholder and co-founder of FTX, is on trial in New York on charges of utilizing customer accounts unlawfully to finance the operations of his investment firm, Alameda Research.
According to a statement , the liquidators, under the direction of administrator John Ray, plan to reimburse FTX’s clients with approximately 90% of the “distributable” value, or assets, that they are able to retrieve.
In contrast to the $9 billion asserted by the platform’s creditors, a progress report at the end of August stated that $7.8 billion had been recovered since the bankruptcy filing.
According to Andrew Entwistle, a consumer protection lawyer at Entwistle & Cappucci LLP, “Customers are projected to recover a substantial portion of their losses.”
However, crypto legal expert David Lesperance says that it is not only the actual customers, but those who bought the exchange’s claims at a substantial discount — like NYU Sterns Professor and influential podcaster Scott Galloway — who will get money back.
“Many FTX customers either didn’t have faith in recovery or the luxury of waiting for a payout and sold to their claims at discounts around 25 cents on the dollar,” Lesperance said.
The plan needs to be turned in by December 16 in order for Wilmington, Delaware-based federal judge John Dorsey to approve it.
The liquidators issued a warning, stating that a number of factors, including changes in the value of the digital assets that comprise a portion of the holdings, will determine the ultimate amount of recovered assets, which has not yet been determined.
Lesperance says that while some of the customer money went into assets that have disappeared in the crypto winter, others were invested in companies that saw an excellent ROI, such as Anthrophic.
“The money that went into crypto currencies are subject to this asset classes historical volatility, which means that the final recovered amount will not be known until the final liquidation,” he commented.
Customers of both exchanges “currently anticipate that FTX’s debtors will not be paid in full,” the statement said.
With the first major milestone of getting users their money back only coming in December, it is uncertain when the funds will start hitting people’s bank accounts. It is touted to be a long and laborious process, and with the plan only going to court at the end of the year, there could still be years to wait.
On the plus side, there are already funds that have made their way back into the hands of those owing customers, so that piece of the puzzle is complete. Still, with claims being bought and sold, and the ongoing trial of Bankman-fried to contend with, it is not worth getting too excited, too soon.
The task of tidying up the mess left by Sam Bankman-Fried, the founder and former CEO of FTX, falls to John Ray III. Given the large number of former clients who are still unpaid and the about $8 billion balance sheet shortfall, restarting FTX is being considered as one of the simplest methods to expedite the recovery of clients’ assets.
“Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers,” claimed the new FTX 2.0 CEO John Ray III.
Lesperance explained that while previously criticized for his fees, John Ray seems to have proven his worth.
“Given the disorganisation and lack of record keeping of FTX, tracing and securing this level of recoverable assets is quite commendable. This performance proves that sometimes Boomers can still be useful,” he concluded.
Approximately $8 billion in client cash was missing when FTX filed for bankruptcy, according to the Manhattan US Attorney’s Office.
The prosecution alleges that these monies were utilized to finance Alameda’s hazardous ventures in addition to political contributions and real estate purchases.
Sam Bankman-Fried insists he did nothing improper.