Collapsed crypto exchange FTX revealed an agreement to allocate up to $230 million from government forfeiture actions to certain shareholders, sparking frustration among creditors.
The agreement was finalized after the August 16 deadline for creditors to vote on the reorganization plan, but it was disclosed on September 27, the last legally allowed day, leaving many creditors feeling blindsided.
Creditors, who are usually paid before shareholders in bankruptcy, were not involved in the agreement. Sunil Kavuri, who represents FTX’s largest creditor group, shared that many creditors are unhappy, saying: “FTX customers following me have commented how they feel scammed and robbed again by the estate.”
The FTX estate is managed by lawyers from Sullivan & Cromwell and will contribute 18% of all forfeiture proceeds—up to $230 million—to a segregated fund for select shareholders. The agreement was officially executed on August 28 but kept under wraps for a month. The estate argued that this provision would prevent costly litigation and delays associated with the forfeiture proceeds.
In a June filing, FTX’s estate estimated the value of the forfeited assets at roughly $1.19 billion. This includes $626 million seized from the Emergent entity used to purchase Robinhood shares, $379 million in assets from third-party cryptocurrency exchanges, $150 million in cash from FTX DM accounts, and two private planes purchased for $35 million. Under the agreement, 18% of these assets—around $214.2 million—would be allocated to shareholders.
The plan also allows for shareholders to receive up to $250,000 each to cover legal fees, paid from the segregated fund.
Creditor backlash and Bitcoin recovery concerns
While the estate claims the reorganization plan had “overwhelming preliminary support,” with 98% of creditors receiving at least 118% of their claim value in cash, some dispute this. Kavuri argues that the bankruptcy claims were calculated based on the value of cryptocurrencies at the time of FTX’s collapse. As a result, creditors could receive only 10-25% of their original cryptocurrency holdings.
For example, a creditor who lost 1 BTC during FTX’s bankruptcy would only receive $16,000, despite Bitcoin’s current value approaching $66,000, far below what they would have received if repaid in-kind.
The SEC had previously warned FTX against repaying creditors in stablecoins or other crypto assets, which could expose the estate to legal action. However, other cryptocurrency companies, including Genesis and BlockFi, have allowed in-kind repayments as part of their bankruptcy proceedings.
The FTX reorganization plan will face its confirmation hearing on October 7, where Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware will determine whether to approve it. The estate must report the results of the creditor vote by September 30, seven days before the hearing, and respond to any objections raised.
