FTX Cleared to Repay $16.5B to Defrauded Users

Judge John Dorsey of the US Bankruptcy Court in Delaware has officially approved FTX's bankruptcy plan, clearing the way for the exchange to repay customers up to $16.5 billion in recovered assets, with interest, in cash.

This approval, nearly two years after FTX's collapse and the appointment of John Ray III as CEO, marks a critical moment for customers whose funds were locked on the platform.

The court’s decision follows weeks of anticipation and comes as a relief to many in the community who had confidence the plan would be accepted.

During the hearing in Wilmington, Dorsey commended the plan as a "model case" for a complex bankruptcy, which includes settlements with customers, creditors, US agencies, and international liquidators.

The plan prioritises customer claims over competing claims from regulators, providing a clear path for repayments.

Authorities estimate that FTX’s downfall affected approximately 9 million customers and investors, resulting in significant financial losses.

FTX's Reimbursement Plan

With Judge John Dorsey's approval, 98% of FTX creditors are set to recover 118% of their funds in fiat, totalling $6.6 billion.

The distribution, scheduled to take place over the next four to eight weeks, follows a creditors' vote where 94% of "dotcom customer entitlement claims" supported the plan.

However, not all were in favour.

FTX creditor representative Sunil Kavuri raised concerns, advocating for repayment in cryptocurrency rather than fiat, though the court ultimately approved the dollar payout.

The repayment process will begin within 60 days of the plan's activation, with Chapter 11 debtors announcing separate distribution dates for their assets.

Alex Thorn, head of research at Galaxy, noted that $1.1 billion will be distributed this year to creditors with claims under $50,000, with the remainder expected in the first half of 2025.

Ray hailed the approval as a major milestone, crediting it to the successful recovery of assets lost during the exchange's collapse.

He added:

“Today's achievement is only possible because of the experience and tireless work of the team of professionals supporting this case, who have recovered billions of dollars by rebuilding FTX's books from the ground up and from there marshaling assets from around the globe.”

FTX's Repayment Comes with Interest

Although the total value recovered by FTX could reach $16.5 billion, cash conversion may reduce that figure to $14.7 billion.

Additional funds were raised through asset sales, including stakes in companies like AI startup Anthropic.

Ray confirmed that most creditors will receive their claims with interest, with the exception of non-governmental creditors.

However, repayments will be made in cash, as returning the original cryptocurrency is unfeasible due to the misappropriation of assets by FTX's founder, Sam Bankman-Fried (SBF).

Mixed Reactions from FTX's Clients

The approval of FTX’s bankruptcy plan has garnered mixed reactions from its clients.

While some expressed relief, others voiced frustration at missing the recent crypto market rebound due to the exchange's collapse.

On the X (formerly known as Twitter) platform, responses ranged from optimism to sarcasm, with one client quipping they "couldn't wait to get their 50 cents" and another doubting the plan would trigger the market activity many were hoping for.

Despite the divided sentiment, FTX hailed the plan's approval as a victory for creditors, emphasizing the recovery of cash and crypto assets lost during the company's downfall.

FTX's Path Ahead

The future of the trading platform remains uncertain.

Early in the bankruptcy process, Ray expressed optimism about potentially relaunching the firm.

However, efforts to attract investors at the time, as noted by in-house attorney Andrew Dietderich, were unsuccessful.

Now, with the bankruptcy nearing a resolution, it is unclear whether management will reconsider plans for a potential "FTX 2.0" revival.