FTX Debtors Reach Agreement with Creditors in Customer Shortfall Settlement
The FTX Debtors have reached a new settlement with creditors known as the Customer Shortfall Settlement. This agreement comes after months of negotiations with FTX’s Committee of Unsecured Creditors, an ad hoc non-US customer committee, and other representatives. However, the proposal still needs to be approved by the court, which is expected to happen when FTX Debtors file their Amended Plan in December.
Earlier this year, FTX.com and FTX US creditors filed a customer property litigation, arguing that they should have priority over unsecured creditors. As part of their efforts to make customers whole, FTX announced its plan to liquidate over $3 billion in crypto assets.
FTX Debtor Chief Hails Creditor Agreement
If the court approves the amendment, FTX.com and FTX US creditors will receive 90% of the Debtors’ distributable assets over a new timeline. However, it is expected that customers of FTX.com will sustain a higher percentage loss, and their final reimbursements will need to consider tax and government regulations.
John Ray III, FTX’s restructuring chief, considers this settlement a significant milestone in the process of compensating FTX customers. He believes that the proposed settlement has created substantial value from what could have been a near-total loss for customers.
FTX Bankruptcy and Sam Bankman-Fried’s Involvement
FTX filed for bankruptcy on November 11, 2022, after the leaked balance sheet of Alameda Research revealed its reliance on FTT’s illiquid token. Former CEO Sam Bankman-Fried was later accused of allowing FTX to borrow unlimited amounts of customer funds.
During Bankman-Fried’s trial, witnesses testified that he changed FTX’s code to provide Alameda with an unlimited line of credit. Nishad Singh, the former FTX director of engineering, stated that Bankman-Fried was aware of the $8 billion shortfall in customer funds resulting from risky lending to Alameda. These actions ultimately led to the company’s bankruptcy.
Hot Take: FTX Makes Progress in Customer Compensation
The agreement between FTX Debtors and creditors represents a significant step forward in compensating FTX customers. While the proposal still requires court approval, it offers a new timeline for distributing assets to creditors. However, customers of FTX.com may experience a higher percentage loss and must consider tax and government regulations in their final reimbursements. This development marks a milestone in the effort to address customer property issues and create value for those affected by FTX’s bankruptcy.
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