Collapsed cryptocurrency exchange FTX is set to repay customers nearly $16 billion, marking a significant milestone in one of the largest crypto bankruptcy recoveries. After almost two years of untangling the financial wreckage left by former CEO Sam Bankman-Fried, U.S. Bankruptcy Judge John Dorsey has approved a plan that ensures former clients of the exchange will finally recover their funds.
A Long Road to Recovery
FTX, once a dominant name in the crypto world, imploded in November 2022 amid a liquidity crisis. The company’s downfall was quick, leaving over a million customers without access to their digital assets. Bankman-Fried, charged with fraud and sentenced to 25 years in prison, left behind a financial maze for insolvency experts to navigate. Initially, the outlook for creditors was bleak. With crypto prices in freefall at the time, estimates indicated that customers would only recover a fraction of their locked assets. However, a recent surge in cryptocurrency prices and diligent asset recovery efforts have dramatically shifted the narrative.
$16 Billion in Customer Repayments
As of June 2024, FTX's advisers have secured $12.6 billion in assets, a figure that could rise to $16.5 billion once all remaining assets, including stakes in venture projects like AI company Anthropic, are liquidated. This remarkable recovery was fueled by strategic deals with creditors and capitalizing on the crypto bull market over the past year. Bitcoin, for example, has nearly quadrupled in value since FTX’s collapse, providing a significant boost to customer repayments. Despite the successes, the repayment plan has not been without controversy. Customers will receive their repayments in cash rather than cryptocurrency. This decision has frustrated some, as they feel they’ve missed out on the potential appreciation of their digital assets. Additionally, FTX’s utility token, FTT, will not hold any value for customers.
A Slice for Shareholders?
In an unusual twist, FTX’s preferred shareholders, typically last in line in a bankruptcy, could also see some returns. This would come from $1 billion in assets seized by federal prosecutors, including $626 million from the sale of Robinhood Inc. stock. Although shareholder payouts are rare in Chapter 11 cases, FTX’s recovery has been so strong that preferred shareholders, such as Canyon Partners and Tribe Capital, could receive a portion of the seized funds, potentially up to $230 million. However, FTX's attorneys warned that no agreement has been reached with the Justice Department regarding these funds, and shareholders may receive nothing if negotiations fail.
While the court's approval paves the way for customer repayments, the process is not immediate. FTX must first establish a trust to oversee the distribution and appoint a firm to manage the payout process. FTX's collapse served as a stark reminder of the risks associated with crypto investments, but this unprecedented recovery effort offers a glimmer of hope for those who lost their funds. With $16 billion soon returning to customers and creditors, FTX’s case could become a rare success story in the volatile world of cryptocurrency bankruptcy.