Some creditors of the bankrupt FTX crypto exchange are preparing to reject a plan that would allow them to recover 118 percent of the money they lost. The proposal is much less generous than it might seem, they say.
Starting in January, FTX’s creditors began to form a voting block, now made up of 1,600 plaintiffs. The new plan will be voted on in June; Bloc leaders Sunil Kavuri and Arush Sehgal will urge members to vote against its approval. “Recovery percentages are drawn from a false basis. It is a false narrative,” says Sehgal. “It is an insult to creditors.”
FTX collapsed in November 2022 after running out of funds to process customer withdrawals. Billions of dollars in client funds were missing. A year later, FTX founder Sam Bankman-Fried was found guilty 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.
Presented on Tuesday, the FTX bankruptcy plan charts a path to a full recovery, plus interest, for virtually all creditors, made possible, according to FTX, by the liquidation of billions of dollars’ worth of investments made by the exchange’s venture capital arm, FTX Ventures , and its sister company. Alameda Research.
Under the proposed plan, US government agencies, including the Internal Revenue Service and the Commodity and Futures Trading Commission, agreed to suspend high-value claims against FTX until creditors have been repaid (although the IRS will receive an initial payment of $200 million). payment as part of the agreement).
“We are pleased to be in a position to propose a Chapter 11 plan that provides for the return of 100 percent of the bankruptcy claim amounts plus interest to non-government creditors,” said John Ray III, the veteran bankruptcy professional in charge of the estate, in a declaration. “I want to thank all of FTX’s customers and creditors for their patience during this process.”
Although the plan offers creditors a larger recovery than FTX had previously indicated would be possible and prioritizes their claims over others, creditors leading the voting bloc oppose the plan for a variety of different reasons.
They disagree with the way claims have been valued under the scheme. Many clients held crypto assets like bitcoin on the FTX platform, but through a process common in bankruptcy proceedings known as dollarization, their claims have been assigned a dollar value based on the price of those assets on the date of the filing. bankruptcy petition. The issue is the subject of a lawsuit presented by creditors within the bankruptcy procedure.
When FTX crashed, the cryptocurrency market took a nosedive, but has since recovered. The value of bitcoin, for example, has increased from approximately $16,000 in November 2022 to more than $60,000 per coin. The market recovery is part of the reason FTX is in a position to pay customers in full, but it also means that customer claims could be less than a third of their value under the plan (even accounting for the interest 18 percent) of what they would be. if assigned to the current value of cryptoassets.