F

FTX’s Amended Bankruptcy Plan: Clients May Lose Billions!

FTX Bankruptcy Case
Spread financial intelligence

As FTX navigates its way out of bankruptcy, the shadow of its founder, Sam Bankman-Fried‘s (SBF) conviction, looms large. The once-celebrated crypto exchange, now under the leadership of CEO John J. Ray III, recently filed an amended reorganization plan, a critical step towards resolving its bankruptcy and compensating investors and customers. However, the path forward is fraught with complexities and uncertainties.

The Strange Proposal

The proposal was filed in bankruptcy court on Dec. 16. 2023. It says that FTX would distribute billions in cash to creditors and customers once the bulk of FTX’s cryptocurrencies are liquidated. The proposal says the value of claims by customers and creditors will be determined based on asset prices at the time FTX sought bankruptcy protection last year. Claims will be classed according to the priority given by the estate. The Block notes that the plan could cause creditors to lose millions if approved.

At the heart of FTX‘s proposed plan is the valuation of its assets based on their worth as of November 11, 2022, the date of its bankruptcy filing. This move has raised eyebrows, given the significant recovery in cryptocurrency prices since then. Bitcoin, for instance, has more than doubled in value, trading above $42,000 from around $17,000 at the time of filing. This valuation strategy could mean that creditors might miss out on potential gains, a prospect that is likely to stir controversy.

Eligible creditors are expected to vote on the plan in 2024, although a specific date remains unconfirmed. The proposal leaves several critical questions unanswered, including whether FTX plans to resume operations post-bankruptcy. Further filings are anticipated to shed light on these aspects, including the potential recovery rate for creditors. Creditor groups will likely oppose FTX’s plan before a judge rules on it. A hearing on the matter will be set next year.

The Conviction!

SBF‘s conviction on November 3, 2023, for multiple fraud and conspiracy charges, including the misappropriation of billions from FTX accounts and defrauding lenders to Alameda Research, adds a layer of complexity to the saga. Sentenced to a maximum of 110 years, his sentencing is scheduled for March 28, 2024.

Creditors like Sunil Kavuri argue that the plan contradicts FTX‘s Terms of Service, which stated that customers, not the exchange, owned the titles to digital assets. Therefore, FTX would have to return the cryptocurrencies to the creditors and not cash on a valuation of the cryptocurrencies from November 2022.

The Debtors’ statement on the plan emphasizes the efforts made to reach a fair and equitable resolution for all stakeholders. Yet, the plan’s approval hinges on various thresholds of creditor consent, and in some cases, dissenting creditors might still be compelled to accept the plan under a “cram-down” scenario.

The global crypto market, despite the FTX debacle, has shown resilience, with the market cap rising significantly. Ironically, even FTX‘s token has nearly doubled in value since the bankruptcy. This market recovery further complicates the amended reorganization plan, as creditors could potentially lose out on millions.

Leave a Reply

Your email address will not be published. Required fields are marked *