Cryptocurrency exchange FTX has won approval to fully repay customers whose digital assets were locked on the platform when it collapsed nearly two years ago.
U.S. Bankruptcy Judge John Dorsey approved the plan on Monday, allowing FTX to return funds to customers impacted by the implosion under former CEO Sam Bankman-Fried.
The unexpected recovery may even benefit shareholders, potentially netting them a portion of the $1 billion seized by federal authorities, Bloomberg reported.
FTX’s Initial Chaos and Fund Recovery
The market was in chaos and cryptocurrency values were falling when FTX crashed in November 2022. Advisers at the time predicted that creditors would only get a small portion of their debts returned.
However, FTX’s situation improved during the bankruptcy process. The company’s assets as of June were valued at $12.6 billion, but when all assets are liquidated, that amount might increase to $16.5 billion. Venture capital initiatives, like FTX’s investment in the AI startup Anthropic, are among the assets sold.
This remarkable recovery has been largely attributed to the rebound in the cryptocurrency market. “Certainly, we benefitted from the bull crypto markets of the last year,” said creditor attorney Ken Pasquale during the court hearing. FTX’s ability to capitalize on the crypto market’s recovery, coupled with deals made with creditors and government regulators, has boosted its prospects.
Potential $1 Billion Gain for Shareholders
A portion of the $1 billion that federal authorities have confiscated may go to FTX preferred stockholders in an unusual outcome for a Chapter 11 bankruptcy case.
The funds include $626 million generated from the sale of Robinhood Inc. stock, previously owned by Sam Bankman-Fried and co-founder Gary Wang. Preferred shareholders Canyon Partners, Tribe Capital Management, and Steadview Capital Management can get paid out of the money that is returned.
With over $600 million in customer claims, Canyon Partners is one of FTX’s biggest claimants. It is uncommon for shareholders to receive compensation in corporate bankruptcy, as stockholders are usually completely wiped out.
Cash Repayments Criticized by Some Customers
Bloomberg also stated that although the majority of creditors receive good news, certain FTX clients have expressed reservations about the strategy. In contrast to other defunct platforms that provided bitcoin repayment options, FTX would give its consumers cash back.
These consumers will therefore be deprived of the growth in digital assets since the exchange failed. It is anticipated that FTX users who own FTT, the platform’s utility token, will get nothing.
The exchange possessed significantly less cryptocurrency than what consumers had been told, which is why FTX decided to reimburse in cash. Lawyers for FTX CEO John J. Ray III clarified throughout the hearing that the platform’s remaining digital assets, including Solana, were sold off to strengthen the company’s financial position.
Future Payouts and Remaining Hurdles
FTX has made progress in regaining assets, but clients won’t receive their money right away. The organization must create a trust and designate a supervising entity to handle the payout procedure before any distribution may start. The sale and hedging of FTX’s remaining digital assets will be handled by Galaxy Digital Capital Management LP, a move that has greatly increased company funds.
The company’s bankruptcy advisors are still working to raise more money, and talks on the possible return of seized assets with the US Department of Justice are ongoing. According to the court petition, FTX stockholders may be entitled to up to $230 million, or 18% of any reclaimed forfeited assets. However, an arrangement with federal prosecutors has yet to be struck.
FTX’s Collapse and Its Aftermath
Following Bankman-Fried’s closure of the cryptocurrency trading platform and transfer of control to insolvency specialists, FTX declared bankruptcy in November 2022. After being removed from office, Bankman-Fried was found guilty of fraud, further damaging the company’s reputation.
However, the bankruptcy advisors at FTX have been able to greatly improve the situation for creditors despite the confusion and unpredictability, which gives both investors and consumers optimism.
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