FTX debtors have resolved claims that clients have made that their assets are property and should be given preference over unsecured creditors. The court’s approval would make creditors of FTX.com and FTX US eligible for 90% of the estate’s distributable assets during a modified schedule. Former FTX engineering chief Nishad Singh said Sam Bankman-Fried was aware of FTX’s financial problems before its bankruptcy in mid-November 2022.
FTX debtors agreed to a new Customer Deficit Settlement after months of negotiations with FTX’s Unsecured Creditors Committee, an ad hoc committee of customers outside the United States, and other representatives.
The court must approve the proposal that the FTX exchange Debtors will present as part of their Amended Plan in December.
FTX Debtor Chief Celebrates Creditor Agreement
Earlier this year, creditors of FTX.com and FTX US filed customer ownership litigation, arguing that they should be given priority over unsecured creditors. The new plan follows FTX’s announcement to liquidate more than $3 billion in crypto assets to compensate clients.
The amendment, if approved by the court, would see creditors of FTX.com and FTX US receive 90% of the debtors’ distributable assets during a new schedule. However, debtors expect that FTX.com customers will suffer a higher percentage of loss and that their final refunds will need to take into account taxes and other government regulations.
Still, the plan represents a milestone in the plan to win back FTX customers, according to FTX restructuring chief John Ray III, who was reportedly pleased with the terms of the settlement, stating that “together, beginning in the most challenging financial disaster I have ever seen, the debtors and their creditors have created immense value from a situation that could easily have been an almost total loss for customers.”
The modified plan involves dividing assets into three pools: segregated assets for the benefit of FTX.com clients, US clients, and a general pool of other assets. However, only the first two groups are included in the Deficit Claim.
The bankruptcy estate has invited customers to make inquiries about the proposed Customer Deficit Settlement. FTX Debtors will present the proposal to the court on December 16. Despite this positive development, FTX debtors warn that clients of both exchanges will likely not receive full payment, and FTX.com could experience a higher percentage of losses.
FTX filed for bankruptcy on November 11, 2022, after a leaked balance sheet from its market maker, Alameda Research (Alameda), exposed the latter’s dependence on the illiquid FTT token. Its former CEO, Sam Bankman-Fried (SBF), was later accused of allowing FTX to borrow unlimited amounts of funds from FTX clients.
Does Sam Bankman-Fried Have Anything to Do with FTX’s Balance Sheet?
Witnesses at the Bankman-Fried trial argued that SBF changed FTX’s code to allow Alameda an unlimited line of credit. On Monday, former FTX engineering director Nishad Singh said Bankman-Fried knew details. He had long known about the $8 billion shortfall in client funds. Which FTX had due to its risky loans to Alameda. This factor ultimately caused the company to go bankrupt. Last week, former Alameda CEO Caroline Ellison testified how Bankman-Fried asked her to prepare balance sheets, especially for creditors who manipulated the values of assets and liabilities.
Additionally, Gary Wang, former CTO of FTX, later testified how Bankman-Fried asked him to change the code, especially FTX, to grant special privileges to Alameda.
By Leonardo Pérez
