98% of FTX Creditors to Get 118% of Allowed Claims, Plus Billions in Bonus
Key Insights:
FTX Bankruptcy proceedings seeks to return holdings to 98% creditors.
Creditors who have claims under $50k would also be paid additional 9% interest.
FTX liquidation process has yielded at least $14-$16 bn.
FTX CEO had earlier assured full asset recovery for most users.
Regulatory as well as government claims by IRD, CFTC, DOJ and others would also be honored but only after creditors are fully compensated.
A year and a half later FTX estate has now issued a press release that they intend to distribute the proceeds of the FTX asset sale. The press release also claimed that the FTX estate has around $14.5 bn - $16 billion in cash that could be distributed to its 98% creditors. Allowed amount refers to claims that were less than $50,000 at the time of bankruptcy.
At the time of filing Chapter 11 Bankruptcy in November 2022, FTX barely had 1% of Bitcoin and Ethereum that it owed to its customers.
As of May 2024, FTX founder Sam Bankman-Fried is serving 25 years of prison sentence.
The proposed payouts were earlier estimated to be 90% in October 2023. However, by Jan 2024, FTX CEO John J. Ray III claimed that they were in position to pay full customer dues. This confidence partly emerged from the increase in Solana's value, in which FTX was a major investor. Also, there had been asset sales from the strategic investments such as from Anthropic where FTX managed to gain $884 million in March 2024.
Ray is also the Chief Restructuring officer in FTX and is responsible for all the liquidations and settlement of user claims on FTX.
However, permission has to be sought from Delaware Bankruptcy courts as per the law where the bankruptcy proceedings are being held.
It is to be noted that in any bankruptcy, the creditors have the first right to seek reparations and only then the remaining proceeds goes to investors and others. In most cases of traditional finance, customers of the fund/exchange are also treated as creditors.
Since its bankruptcy, FTX had been scraping its scattered assets from all over the world and has been putting them for liquidation.
FTX to Distribute Billions in Bonuses
FTX is also expected to distribute a 9% per annum interest to the claimants based on their lost funds. This additional 9% would seek to justify the time value of the funds which were lost in the FTX bankruptcy.
The move was criticized by several market leaders, public figures and crypto community because they feel that the increase in crypto markets was far more than what is being distributed as compensation.
Mike Belshe, the CEO of BitGo posted on X criticizing the FTX that it was unfair to compensate at the rate of $16,800 per Bitcoin when the market price is around $62,200.
More Claims to Settle After Creditors
Even if FTX settles the claims of creditors, it still owes a ton of money to the government. Most of the government claims originate from the CFTC and the IRS.
The IRS had a $24 billion claim initially but later accepted to settle for $200 million in cash and later it would receive subordinate payments of $685 million after all creditors and agencies are paid.
The CFTC and other regulators agreed to subordinate their claims after investors and users of FTX were paid in full along with some bonuses.
The US Department of Justice holds another $1.2 billion in claims.
Sam Bankman Fried had earlier called FTX's fall as zero loss event as he and his lawyers claimed that everyone would be paid in full. They even asked for a light sentencing based on an expected full recovery.
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