FTX has billions of dollars more than is needed to pay compensation to bankruptcy victims

(Bloomberg) — Cryptocurrency exchange FTX raised billions of dollars more than it needed to cover what customers lost in its November 2022 collapse, setting them up to receive full refunds, plus interest, a rare outcome in U.S. bankruptcy proceedings.

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Lower-ranking creditors typically receive only pennies on the dollar for their holdings, but FTX has benefited from the strong rise in cryptocurrencies including Solana, a token heavily backed by convicted fraudster and FTX founder Sam Bankman-Fried. The company also sold dozens of other assets, including several venture capital projects such as a stake in artificial intelligence company Anthropic.

“In any bankruptcy, this is just an unbelievable outcome,” said FTX CEO John Ray, who took over the company when it collapsed.

Once the sale of all of its assets is completed, FTX will have up to $16.3 billion in cash to distribute, according to a company statement. It owes customers and other non-government creditors about $11 billion.

There have only been a few large corporate bankruptcies in the United States that have seen creditors recover all of their money recently. In 2021, car rental company Hertz emerged from bankruptcy with money left to repay shareholders, following a strong rise in used car prices. In 2013, American Airlines Group Inc.’s parent company exited. Also out of bankruptcy with a plan to make distributions to shareholders and repay unsecured creditors in full.

The latest figures confirm the surprise result for FTX, whose collapse led to comparisons with the fraud-induced collapse of Enron and the collapse of Bernie Madoff’s Ponzi scheme. Earlier this year, the company had about $6.4 billion in cash.

Although all debts will be repaid in full, plus interest, there will be nothing left for stockholders, according to court documents filed Tuesday evening in federal court in Wilmington, Delaware, where the FTX case is being handled.

Major shareholders in FTX include Sequoia Capital, Thoma Bravo, Singapore’s Temasek Holdings Pte and the Ontario Teachers’ Pension Plan, according to a court filing last year. Individuals including Tom Brady and Gisele Bündchen also own shares in common.

Big recovery

The company, now run by restructuring advisers, has also proposed setting up a fund to pay some creditors, including those who lent the FTX cryptocurrency, with money that would otherwise have gone to government regulators. They also traced the company’s assets and untangled a web of accounts spread around the world.

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These recoveries have been dealt a massive shock by the recovery of cryptocurrencies, which has seen the price of Bitcoin nearly quadruple since late 2022.

Depending on the type of claim they hold in the case, some creditors can recover up to 142% of the amounts owed to them. However, the vast majority of customers will likely receive 118% of what they had on the FTX platform on the day the company entered Chapter 11 bankruptcy. Payment will likely come several months later, as FTX works its way through the final stages of the case. Bankruptcy.

However, the prospect of such huge gains is boosting the prices of creditors’ claims, some of which are now trading at more than 100% of their face value, according to two people familiar with the transactions. Many of these claims traded for as little as three cents on the dollar in the immediate aftermath of the bankruptcy.

The great renaissance of cryptocurrencies

The increasing value of claims also reflects a notable recovery in the cryptocurrency markets. For example, Bitcoin rose to over $62,000 from around $16,000 right after the FTX bankruptcy.

This has fueled resentment among some creditors, who claim they are being cheated even though they will ultimately recover more than the dollar value of their claims.

“In reality, I will only get 25% of my bitcoin back, and that will take many years,” said U.K.-based Arush Segal, a member of FTX’s unsecured creditors committee who had more than $4 million stuck in the exchange. He overthrew.

In a document filed Tuesday, restructuring advisers laid out new details of their proposal to distribute cash to creditors and end the Chapter 11 case. This document, known as a disclosure statement, is designed to help creditors vote on the proposed payment plan.

US Bankruptcy Judge John Dorsey will take that vote into account when he decides whether to approve the plan later this summer. Dorsey is scheduled to hold a hearing in late June on the disclosure statement and voting procedures.

FTX declared bankruptcy in November 2022 after Bankman-Fried shut down the company’s cryptocurrency trading platform and handed control over to insolvency experts. Bankman-Fried was later convicted of fraud.

The case is filed before FTX Trading Ltd., No. 22-11068, U.S. Bankruptcy Court for the District of Delaware.

–With assistance from Luca De Paoli and Siddhartha Shukla.

(Adds comment from creditor in paragraph 20.)

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