FTX and CFTC settle for $12.7 billion, paying creditors in full

Bankrupt cryptocurrency exchange FTX and the U.S. Commodity Futures Trading Commission (CFTC) have reached a $12.7 billion settlement, pending approval from a Delaware judge. If approved, the entire sum will be allocated to repaying FTX’s creditors, as the CFTC has decided against seeking a civil monetary penalty.

Details of the Settlement

The settlement, outlined in a July 12 filing, comes after extensive negotiations between FTX and the U.S. commodities regulator. CFTC senior trial attorney Carlin R. Metzger and FTX’s CEO John J. Ray III described the settlement as an integral part of the Debtors’ proposed chapter 11 reorganization plan. They stated, “It resolves ongoing litigation and disputes with one of the largest creditors of the Debtors, avoids the cost and delay of further litigation, and mitigates a significant risk of diminution of the assets available for distribution to creditors.”

Background of the Case

The lawsuit, filed by the CFTC in December 2022, accused FTX, its former CEO Sam Bankman-Fried, and its sister trading firm Alameda Research of fraud and misrepresentations, which caused customers to lose $8 billion. Initially, the CFTC sought a $52.2 billion claim, now settled at $12.7 billion.

The settlement allocates $8.7 billion for restitution and $4 billion for disgorgement, with the latter being subordinate to the payment of all creditor claims to ensure their priority. According to the filing, the CFTC will receive nothing if FTX complies with its reorganization plan, allowing the entire $12.7 billion to be distributed to creditors, subject to available funds.

CFTC’s Decision

The CFTC has chosen not to pursue a civil monetary penalty, aiming instead to maximize creditor recoveries. Andy Dietderich, partner at Sullivan & Cromwell and lead counsel for the FTX Debtors, explained, “In this bespoke settlement, the CFTC foregoes its own recovery against FTX in order to supplement the recoveries of customers and cryptocurrency lenders beyond the levels typical in chapter 11 cases.”

Upcoming Hearings and Creditor Reactions

A hearing on the settlement is scheduled for August 6 in the Bankruptcy Court for the District of Delaware. FTX’s proposed reorganization plan aims for a 118% return for 98% of creditors with claims under $50,000, based on asset prices at the time of FTX’s bankruptcy filing in November 2022.

However, some creditors have opposed this plan, arguing that payouts should reflect the current value of cryptocurrencies, which have increased by 166% since the bankruptcy filing. Creditors are voting on their preferred payout method, and on October 7, U.S. Bankruptcy Court Judge John Dorsey will make the final decision.