FTX, a crypto exchange that collapsed nearly 18 months ago, recently announced that creditors who had money frozen on the platform will be getting their money back, plus interest. This is an extraordinary outcome, as creditors are rarely made whole in bankruptcy proceedings. Customers who had funds on FTX are understandably frustrated when they realize how much their assets could have appreciated if they had been able to hold onto them, considering the rise in the value of Bitcoin over the past few months.
The asset recovery process for FTX was surprising, given the mismanagement and lack of formalized bookkeeping at the company. The restructuring expert who led the bankruptcy process described FTX as a total mess. Despite this, 98% of FTX creditors are expected to receive approximately 118% of the amount of their claims. The bankruptcy managers successfully tracked down FTX’s crypto and other holdings and sold them, capitalizing on the crypto market’s bullish trend to secure enough funds to repay customers in full.
FTX customers who had their funds frozen on the platform will see a significant portion of their claims returned to them. For example, a single Bitcoin holder who had $17,500 in Bitcoin on FTX will receive roughly $20,650 back after waiting for a year and a half. However, FTX’s shareholders, including individuals like Tom Brady and private equity firms like Sequoia Capital, are likely to see their equity in the company wiped out, as creditors and the government have priority in receiving payments from the $16 billion FTX estate.
FTX’s founder and former CEO, Sam Bankman-Fried, received a 25-year prison sentence for stealing customer funds and misusing them on side projects. Bankman-Fried has continually claimed that FTX was actually solvent and that the money was always there, but not in a liquid form. However, this argument was not well-received by prosecutors and the judge, who were not swayed by the claim that customers would likely be made whole, thus absolving Bankman-Fried of any wrongdoing. The bankruptcy expert overseeing the asset recovery process emphasized in a letter to the court that FTX was neither solvent nor safe under Bankman-Fried’s leadership.
Overall, the outcome of the FTX bankruptcy proceedings, where creditors are expected to be repaid in full, is rare and remarkable in the world of bankruptcies. Despite the chaos and mismanagement that plagued FTX, the asset recovery process successfully located and liquidated the company’s assets, benefiting from the recent surge in cryptocurrency values. While FTX customers are relieved to have their funds returned, the former CEO’s conviction and the equity wipeout for shareholders serve as reminders of the consequences of financial mismanagement and dishonesty in the cryptocurrency industry.
