FTX Outlines Comprehensive Payout Plan for Settling Debts with Customers and Creditors

FTX, the cryptocurrency exchange that collapsed spectacularly, has put forward a revised plan to repay billions of dollars to its customers and creditors, signaling the commencement of the final stage in its bankruptcy proceedings.

Although the plan outlines several key procedures, it leaves certain critical questions unanswered. These include the future status of FTX’s crypto exchange, the valuation methods for specific digital assets, and the projected returns for creditors, as per a Bloomberg report on Monday.

The proposal is set to be put to a vote among creditors next year and is expected to include more detailed provisions before receiving the ultimate sanction from US Bankruptcy Judge John Dorsey.

Consensus on the Plan’s Framework

Remarkably, the principal creditor and customer factions in the Chapter 11 case have already agreed on the general structure of this plan.

Proposed Cash Distributions

The plan proposes to distribute billions in cash, following the sale of a significant portion of the firm’s cryptocurrency holdings. A recent court document submitted to the United States Bankruptcy Court for the District of Delaware suggests that any customer claim for compensation should be valued as of November 11, 2022.

Under this scheme, the value of each claim would be determined by converting the crypto assets into cash, based on conversion rates outlined in a specific table. It’s noteworthy that cryptocurrency prices have seen considerable growth since FTX’s bankruptcy filing. For example, Bitcoin’s value has risen from $17,036 at the time of filing to $42,272 at the current rate.

Conviction of Sam Bankman-Fried

In recent developments, FTX founder Sam Bankman-Fried was convicted for his role in a massive fraud that precipitated the exchange’s downfall. A tentative sentencing date is set for March 28, 2024, with legal analysts predicting a prison term of 15-20 years, though the theoretical maximum could be as high as 115 years.

Post-bankruptcy, restructuring experts have taken over FTX’s management. They have been diligently working to recover assets and untangle the complex network of debts owed to various creditors, including customers who deposited cash and cryptocurrencies with the platform.

Leniency Expected for Cooperating Witnesses

In related news, Caroline Ellison, CEO of Alameda Research, Gary Wang, FTX co-founder, and Nishad Singh, FTX engineering chief, are anticipated to receive minimal or no prison time in exchange for their cooperation. All three confessed to engaging in fraudulent activities directed by Bankman-Fried, which involved transferring billions of dollars of FTX customer funds to Alameda, a hedge fund predominantly owned by Bankman-Fried.

However, they are not exempt from other penalties. The government may seek the return of illicit gains and mandate restitution payments to the victims. Given that the government estimates losses to FTX customers in the billions, the financial implications for these three individuals could be significant.