Legal representatives for non-U.S. creditors of FTX.com are pushing for approval of a proposed deal that would allocate up to 90% of remaining assets to investors who held funds on the platform prior to its bankruptcy. The deal is seen as a significant step towards compensating affected users who were impacted by the exchange’s financial woes.
Lawyers representing non-U.S. creditors of the defunct cryptocurrency exchange FTX.com are advocating for a deal that promises to provide affected investors with up to 90% of the remaining assets in the exchange’s bankruptcy. This deal is a crucial development in the ongoing efforts to compensate users who suffered losses as a result of FTX.com’s financial troubles.
It is essential to clarify that the 90% arrangement pertains to the distribution of assets left after the bankruptcy proceedings, rather than 90% of the initial investments made on FTX.com before its collapse. Consequently, the exact amount that creditors will receive in relation to their initial investments remains uncertain, pending the conclusion of the bankruptcy process.
FTX creditors’ legal strategy and path to resolution
In addition to the primary asset distribution agreement, the deal includes a significant secondary component affecting users who withdrew their funds from FTX.com prior to its bankruptcy. Customers who managed to withdraw assets during the nine-day period between the revelation of FTX’s financial difficulties in early November 2022 and its subsequent collapse will be required to return 15% of those funds. In return, they will be exempted from further involvement with the bankruptcy liquidators.
Sarah Paul, a lawyer representing the Ad Hoc Committee of Non-U.S. Customers with $1 billion in claims against FTX, emphasized the importance of disseminating information about the deal. She stated, “We want to get the word out. This is a really great result for customers.”
The creditor’s group had initially pursued a legal claim asserting that the assets held by customers on FTX.com belonged to the customers themselves, not the exchange. Therefore, they contended that these customers should be prioritized for payment ahead of unsecured creditors. The ongoing trial of former FTX CEO Sam Bankman-Fried has shed light on the alleged misuse of customer trust and funds by the company.
Sarah Paul further emphasized the plight of FTX.com customers, stating, “Everyone who’s watching the criminal trial of Sam Bankman-Fried has seen the FTX.com customers were really the victims of mass misappropriation of their assets.”
While the creditor’s group initially pursued legal avenues to secure their claims, the bankruptcy negotiations have always been geared toward achieving a settlement. The primary motivation behind this approach is to expedite the process of returning funds to affected individuals. The legal representatives have set a target of obtaining a 75% approval rate from the group of 60 individuals and entities involved in the negotiation by December 1. Additionally, they are actively seeking participation from other investors in the coming weeks.
If the proposed settlement gains approval from creditors, it will still require the endorsement of the bankruptcy court. The ultimate objective is to conclude the bankruptcy proceedings by approximately July 2024, enabling affected individuals to access their locked-up funds that have been frozen since the previous year.
The cryptocurrency industry is relatively young and lacks a well-established track record for the recovery of funds from collapsed exchanges tainted by fraud. Nevertheless, the proposed 90% asset distribution deal represents a significant step towards compensating FTX.com users who suffered losses, offering hope for a more favorable outcome compared to some other high-profile financial scandals in recent history.