FTX unveils plan for creditor repayment, but key questions unresolved

FTX Trading Ltd., embroiled in a high-profile bankruptcy case following a massive fraud scandal, has presented its latest proposal for reimbursing billions of dollars to its customers and creditors.

The core of FTX’s reorganization plan involves addressing the substantial debts incurred. However, it fails to clarify the future of its defunct cryptocurrency exchange, the valuation methods for certain digital tokens, and the expected repayment amounts for creditors. The plan’s ambiguity on these crucial points adds complexity to an already convoluted case.

FTX’s proposal, now nearing the conclusion of its bankruptcy journey, has achieved preliminary consensus on its framework from key creditor and customer groups. The next step involves a voting process by creditors next year, after refining more details, before seeking final approval from US Bankruptcy Judge John Dorsey.

One key aspect of the proposal is the distribution of billions in cash, following the substantial liquidation of FTX’s cryptocurrency holdings. This strategy shift is noteworthy, given the scale of assets involved and the company’s tumultuous past year.

The shadow of Sam Bankman-Fried, FTX’s founder convicted of fraud, looms over these developments. Since the firm’s bankruptcy filing last year, restructuring professionals have been laboriously tracking down assets and unraveling debts owed to a diverse creditor base, including both cash and crypto investors.

A recent milestone in this process was the Delaware Bankruptcy Court’s approval of over $700 million in trust asset liquidation. These assets consist of holdings in five different Grayscale Trusts, which have a combined value of $691 million, and one trust managed by Bitwise, with an estimated worth of $53 million.

This move follows the court’s earlier authorization for FTX to liquidate nearly $3.4 billion in cryptocurrency assets. To mitigate potential adverse impacts on the market, the court directed that these assets be sold in tranches, with each batch not exceeding $50 million to $100 million in value.

The development comes hot on the heels of the conviction of FTX founder Sam Bankman-Fried for fraud. While the maximum sentence for his crimes could reach 115 years, legal experts suggest a more realistic term could range between 15 to 20 years. A sentencing hearing is scheduled for March 28, 2024.

Earlier in October, a New York bankruptcy judge agreed to a settlement agreement between FTX and bankrupt crypto lender Genesis Global Capital (GGC). Following the approval, FTX’s hedge fund, Alameda Research, is set to receive $175 million from the affiliate of Digital Currency Group, the struggling crypto empire whose lending unit filed for bankruptcy in January.