FTX Customers Set to Vote on Multi-Billion Dollar Repayment Plan

FTX, a once thriving crypto exchange, is now seeking a lifeline from its customers. The company, which collapsed under the weight of its fraudulent activities, is now proposing a multi-billion dollar repayment plan—a critical step toward resolving the protracted FTX bankruptcy saga—with far-reaching implications for creditors and future proceedings. 

Background And Context

FTX’s downfall began in November 2022 when it filed for Chapter 11 bankruptcy. The company’s founder, Sam Bankman-Fried, was later convicted of fraud. The collapse left customers’ assets locked on the platform.

So, what does this plan entail?

The Repayment Plan

The proposed repayment plan is a bold move to compensate victims and resolve billions of dollars in government penalties. The vast majority of FTX customers stand to recover a remarkable 119% of their original holdings—the value they possessed on the day FTX filed for bankruptcy.

Other creditors, including those with government claims, could see up to 143% of their owed amounts returned. Essentially, the estimated shortfall claims are $8.9 billion for FTX.com and $166 million for FTX.US, which means that while substantial funds are being returned, full recovery of investments is unlikely.

Notably, bankruptcy law mandates valuing claims based on prices at the time of FTX’s Chapter 11 filing despite subsequent crypto price surges.

FTX is actively soliciting votes from its extensive customer base, aiming to gather feedback from those who haven’t been directly involved in negotiations.

Customers have until August 16, 4 pm ET, to cast their ballots.

Judge Dorsey will evaluate the plan’s approval on October 7, marking a decisive moment in FTX’s recovery journey.

FTX currently holds $11.4 billion, with expectations of reaching $12.6 billion by the end of October.

The exchange is monetizing its assets, including a unique pool acquired with misappropriated customer funds. Negotiations with federal authorities continue, exploring ways to leverage government claims for customer compensation.

Key Dates

August 16: Voting deadline for FTX customers.

October 7: Judge Dorsey’s decision on plan approval.

Implications for Creditors

For FTX customers, the upcoming vote represents a crucial step towards reclaiming a portion of their lost funds. The plan outlines specific terms for customers who withdrew large sums shortly before the bankruptcy, with clawbacks affecting those who withdrew over $250,000 within nine days of the collapse.

It could serve as a benchmark for future creditor recoveries in crypto bankruptcies. It shows that creditors can recoup some of their investments even in significant market downturns and company failures. This indeed marks the beginning of the end of one of the most high-profile collapses in crypto history.

Broader Impact on Crypto Bankruptcy Cases

The resolution of this high-profile case could set a precedent for how similar cases are handled. It demonstrates the potential for substantial creditor recoveries in crypto bankruptcies, which may influence the approach and expectations in future proceedings.

The FTX-Voyager settlement could encourage more proactive and collaborative approaches to resolving disputes in crypto bankruptcies. It may also lead to more structured frameworks for creditor recoveries and set expectations for the percentage of claims that can be realistically recovered.