FTX’s Ambitious Creditor Payout Plan

FTX, a bankrupt cryptocurrency exchange, has proposed a reorganization plan that promises substantial payouts to its creditors pending approval by a Delaware bankruptcy court. The plan outlines an ambitious proposal wherein 98% of creditors would receive 118% of their claims in cash within 60 days of court approval. Furthermore, other non-governmental creditors would receive 100% of their claims along with up to 9% interest to offset the time value of their investments.

This plan exceeds earlier estimations by the FTX estate, which previously indicated a payout of around 90% of customer funds. Current FTX CEO John Jay Ray III later revised this estimate, assuring the court that full repayment was feasible. Despite the recovery of the cryptocurrency market following FTX’s collapse, the estate claims that this resurgence is not the primary driver behind its substantial cash reserves.

The estate expects to distribute between $14.5 and $16.3 billion in cash, accumulated through a year-and-a-half-long process of consolidating FTX’s assets globally and converting them into liquid funds. Notably, the estate disclosed a significant shortfall in Bitcoin and Ethereum holdings at the time of filing for Chapter 11 bankruptcy, with only a fraction of the expected assets located.

Assets from FTX’s investments, including an 8% stake in Anthropic sold for $884 million, have been liquidated to meet creditor claims. The proposed plan also addresses regulatory claims from entities like the IRS and CFTC, with the IRS accepting a settlement involving a $200 million cash payment and a subordinated claim of $685 million.

Notably, former FTX CEO Sam Bankman-Fried, convicted of fraud, argued during sentencing that the estate’s repayment to customers demonstrated minimal harm caused by the exchange’s collapse. However, Ray and numerous creditors disputed this, emphasizing the substantial effort required to recover assets and asserting that criminal conduct had still occurred.

In summary, FTX’s reorganization plan presents an ambitious framework to reimburse creditors, leveraging cash reserves amassed through asset liquidation. The proposal, subject to court approval, aims to settle outstanding debts and regulatory claims while addressing the fallout from FTX’s collapse and subsequent bankruptcy.

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