Customers of the failed cryptocurrency exchange FTX are set to recover all the money they lost when the company collapsed in 2022 and receive interest on top, the company’s bankruptcy lawyers said Tuesday.
The announcement marked a milestone in the attempt to recover the $8 billion in customer assets that disappeared when FTX imploded virtually overnight, triggering a crisis in the cryptocurrency industry. Under a plan filed in federal bankruptcy court in Delaware, virtually all of FTX’s creditors, including hundreds of thousands of ordinary investors who used the exchange to buy and sell cryptocurrencies, would receive cash payments equal to 118 percent of the assets they owned. had stored on FTX. the lawyers said.
Those payments would flow from a pool of assets that FTX lawyers have gathered in the 17 months since the exchange collapsed, the lawyers said.
But the recoveries come with a caveat. The amount owed to clients was calculated based on the value of their holdings at the time of FTX’s bankruptcy in November 2022. That means clients will not reap the benefits of a recent surge in the cryptocurrency market that drove up the price. of Bitcoin to a record. high. A customer who lost a Bitcoin when FTX imploded, for example, would be entitled to less than $20,000, even though one Bitcoin is now worth more than $60,000.
It will be months before payments begin. The plan must be approved by the federal judge overseeing FTX’s bankruptcy, John T. Dorsey.
Still, a major recovery of customer money seemed unlikely when FTX collapsed after a run on deposits. Before its implosion, customers used FTX as a marketplace to buy and sell digital currencies and stored billions of dollars in cryptocurrency on the platform.
After the implosion, FTX founder and CEO Sam Bankman-Fried resigned, handing control to John J. Ray III, a corporate turnaround veteran who oversaw the fall of Enron.
Bankman-Fried was later found guilty of extensive fraud in which he diverted billions of dollars from clients’ savings to finance venture investments, political donations and other expenses. He was sentenced to 25 years in prison in March.
After taking over, Ray described the company as the biggest disaster he had ever seen. But over the next few months, he and his team began the painstaking process of locating the missing assets.
Some of the recoveries arose from successful investments Bankman-Fried made during her tenure at FTX. In 2021, the company had invested $500 million in artificial intelligence company Anthropic. The rise of the AI industry made those stocks much more valuable. This year, Ray’s team sold about two-thirds of the FTX stake for $884 million.
FTX also reached a deal to recover more than $400 million from Modulo Capital, a hedge fund that Bankman-Fried had funded. And FTX lawyers filed lawsuits to recover funds from former company executives and others, including Bankman-Fried’s parents.
Crypto experts have been expecting significant recoveries following the FTX bankruptcy for months. Some opportunistic investors have purchased bankruptcy claims from exchange customers for pennies on the dollar, hoping to profit when payments begin.