FTX proposed settlement: Customer could get return over 90% of FTX crypto exchange assets

Customers of the bankrupt crypto exchanges FTX and FTX.US could receive a significant portion of their assets back, with a proposed settlement nearing finalisation. If approved, this settlement could see over 90 percent of customer assets returned by the end of the second quarter of 2024.

On 17 October, FTX debtors announced that they had reached a pivotal point in their Chapter 11 case after engaging in extensive discussions with unsecured creditors, non-United States customers, and class action plaintiffs. These discussions aimed to resolve disputes related to customer property.

(2/4) After extensive discussions with the Ad Hoc Committee of Non-US Customers, the Unsecured Creditors Committee and class action plaintiffs, the FTX Debtors have reached a proposed settlement of the customer property disputes.

— FTX (@FTX_Official) October 17, 2023

While a notice of the proposed settlement was filed with a Delaware-based U.S. bankruptcy court on 16 October, an official filing seeking the court's approval must be submitted by 16 December.

John J. Ray III, the CEO and Chief Restructuring officer of FTX Debtor, expressed satisfaction with the settlement's terms, emphasising the significant value created for customers. He said,

The proposed settlement of the customer property issues is another major milestone in our case.

Dividing asset into three pools

The proposed plan involves dividing the assets into three pools, each designated for the benefit of different customer groups, including FTX.com customers and U.S. customers. However, the third pool comprises general assets and does not play a role in the shortfall claim.

He further added,

Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers. I would especially like to recognise the important role of the independent Board of Directors who quickly responded to the call to duty at a time of crisis.

It is important to note that customers of both exchanges may not receive full payments, and FTX.com customers could experience a higher percentage of losses.

(3/4) If approved by the Bankruptcy Court, the settlement will create a special “Shortfall Claim” to benefit customers, as previously proposed by the FTX Debtors in July, and facilitate an offer to eligible customers to settle customer preference exposure at an agreed amount.

— FTX (@FTX_Official) October 17, 2023

An intriguing aspect of the proposed plan concerns customers who withdrew over $250,000 from the exchange within nine days of bankruptcy. Their claims may be reduced by 15 percent of the withdrawn amount. However, claims under $250,000 would not face this reduction, as clarified by FTX debtors.

Furthermore, the amended plan may exclude insiders, affiliates, and customers with knowledge of the misappropriation of customer deposits and corporate funds from the settlement. It's essential to note that former FTX CEO Sam Bankman-Fried is currently in the midst of a fraud trial, focusing on his role in FTX's bankruptcy in November 2022.