Embattled cryptocurrency exchange FTX has received approval for its bankruptcy plan, which will allow the company to repay the vast majority of its customers using over $16.5 billion in assets recovered. The decision, handed down by U.S. Bankruptcy Judge John Dorsey on Monday, marks a significant step in the long-running legal battle following the exchange’s collapse in 2022.
Once hailed as one of the world’s leading crypto exchanges, FTX’s downfall sent shockwaves through the digital currency industry. The company’s collapse followed revelations that founder Sam Bankman-Fried had misused customer funds to cover risky investments made by his hedge fund, Alameda Research. Bankman-Fried was convicted of fraud and sentenced to 25 years in prison in March 2024. Despite his appeal, the consequences of FTX’s implosion continue to unfold.
Judge Dorsey praised the complexity of the case and commended the efforts involved in its resolution, saying, “FTX’s success made it a model case for how to deal with a very complex Chapter 11 bankruptcy proceeding.” The plan revolves around a series of settlements between FTX and its customers, creditors, U.S. government agencies, and international liquidators.
Under the terms of the plan, FTX will prioritise repaying its exchange customers, with an estimated 98% of those holding $50,000 or less set to receive their repayments within 60 days of the plan’s effective date. However, the exact timing for the plan’s enactment remains uncertain.
The company estimates it has between $14.7 billion and $16.5 billion in assets available to repay creditors, allowing it to cover at least 118% of the value of customers’ accounts as of November 2022, when FTX filed for bankruptcy. Despite this, some customers have voiced disappointment over the settlement, particularly in light of the significant rebound in cryptocurrency prices since 2022.
David Adler, an attorney representing creditors who objected to the plan, highlighted concerns among customers. “The price of a bitcoin has risen to over $63,000 from its November 2022 price of $16,000,” Adler said, noting that customers who deposited bitcoin on the FTX exchange are frustrated by the company’s claim of a 100% recovery based on those lower valuations.
FTX has defended its position, explaining that the customers’ original cryptocurrency holdings were misappropriated by Bankman-Fried and cannot be simply returned. The exchange disclosed that as of its bankruptcy filing, FTX.com held only 0.1% of the bitcoin that customers believed they had deposited.
Efforts to recover missing assets have been extensive, with FTX’s team working to rebuild the company’s financial records and recover funds. This includes the sale of various investments, such as FTX’s stake in artificial intelligence start-up Anthropic. CEO John Ray credited the recovery team for their work, stating, “Today’s achievement is only possible because of the experience and tireless work of the professionals supporting this case, who have recovered billions of dollars by rebuilding FTX’s books from the ground up.”
FTX has also entered into negotiations with the U.S. Department of Justice over $1 billion seized during Bankman-Fried’s criminal prosecution. Court documents indicate that shareholders, who would typically receive nothing in such a bankruptcy case, could stand to gain as much as $230 million from the seized funds.
However, some customers remain dissatisfied with the settlement, particularly those who missed out on the recent surge in crypto markets. Despite these objections, FTX maintains that returning customers’ assets in their original cryptocurrency is not feasible. One of FTX’s financial advisors, Steve Coverick, testified that purchasing billions in cryptocurrency to repay customers in kind would be “exorbitantly expensive.”
As FTX continues the process of winding down its operations, it remains in dialogue with international regulators, including those in the Bahamas, where liquidators had previously challenged FTX’s authority to file for bankruptcy in the U.S. Cooperation between U.S. authorities, foreign liquidators, and regulators has been crucial in the resolution of this complex case.
The bankruptcy ruling marks a significant milestone in FTX’s efforts to resolve the fallout from its collapse, providing much-needed clarity to thousands of affected customers.
