Some creditors of bankrupt crypto exchange FTX are preparing to reject a plan that would give them back 118 percent of the money they lost. The proposal is far less generous than it appears, they claim.
Starting in January, FTX creditors began forming a voting bloc that now consists of 1,600 plaintiffs. The new plan is scheduled to be put to a vote in June; The bloc’s leaders – Sunil Kavuri and Arush Sehgal – will urge members to vote against the approval. “The recovery percentages are based on a fake baseline. It is a false narrative,” says Sehgal. “This is an insult to creditors.”
FTX collapsed in November 2022 after running out of funds to process customer withdrawals. Billions of dollars in customer funds were missing. A year later, FTX founder Sam Bankman-Fried was convicted of multiple counts of fraud and conspiracy in connection with the exchange’s collapse. In April he was sentenced to 25 years in federal prison.
The FTX bankruptcy plan filed Tuesday represents a path to a full reorganization with interest for virtually all creditors — made possible, according to FTX, by liquidating billions of dollars’ worth of investments made by the exchange’s venture capital division. FTX Ventures and its sister company Alameda Research.
Under the proposed plan, government agencies in the United States – including the Internal Revenue Service and the Commodities and Futures Trading Commission – have agreed to suspend large claims against FTX until creditors repay their debts (although the IRS will require an upfront payment of $200 million US dollars). Payment as part of billing).
“We are pleased to propose a Chapter 11 plan that provides for the refund of 100 percent of the bankruptcy claim amounts, plus interest, to out-of-state creditors,” John Ray III, the veteran bankruptcy expert in charge of the estate, said in a statement. “I would like to thank all of FTX’s customers and creditors for their patience throughout this process.”
Although the plan allows creditors greater compensation than FTX had previously thought possible and prioritizes their claims over others, the creditors leading the voting freeze oppose the plan for a variety of reasons.
They object to the way the claims were valued under the plan. Many customers held crypto assets such as Bitcoin on the FTX platform, but through a process common in bankruptcy proceedings called dollarization, their claims were instead assigned a dollar value based on the price of those assets at the time of the bankruptcy filing. The matter is the subject of a lawsuit brought by creditors as part of the insolvency proceedings.
When FTX fell, the crypto market crashed but has since recovered. The value of Bitcoin, for example, has increased from around $16,000 in November 2022 to over $60,000 per coin. The market recovery is one of the reasons FTX is able to refund customers in full. But it also means that customer claims under the plan – even taking into account the 18 percent interest – could be less than a third as valuable as they would be if attributed to the cash value of crypto assets.