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FTX raised billions more than it needed to repay bankruptcy victims
Failed cryptocurrency exchange FTX took in billions of dollars more than it needed to fully repay customers who lost funds in the November 2022 crash.
In a rare twist on typical US bankruptcy proceedings, FTX, whose recent fall resulted in a 25-year prison sentence for its former CEO, Sam Bankman-Fried — also has enough money to cover the interest, second Bloomberg.
Once it finishes selling all its assets, FTX will have up to $16.3 billion in cash to deploy compared to about $6.4 billion at the start of the year, the company said in a statement.
The company owes more than 2 million customers and other non-government creditors about $11 billion.
“In any failure, this is just an incredible achievement,” said FTX CEO John Ray, who took over the company when it collapsed.
Lower-ranking creditors traditionally receive only pennies on the dollar for their stakes in bankrupt companies, Bloomberg reported, but FTX has benefited from strong rallies in crypto tokens like Solana, which was approved by Bankman-Fried.
Once all of its assets are sold, Sam Bankman-Fried’s FTX will have up to $16.3 billion in cash to distribute to clients who lost funds in the November 2022 crash, enough to repay victims in full, plus interest . Christopher Sadowski
Even if FTX pays off its debts in full, plus interest, there won’t be much left for shareholders, according to documents reviewed by Bloomberg filed Tuesday evening in federal court in Wilmington, Del., where the FTX case is located. is managed.
In bankruptcy, the owners of the business cannot collect anything until all debts are paid in full.
In this case, U.S. regulators and the Internal Revenue Service have claims large enough to sweep away shareholders, Bloomberg reported.
Major holders of FTX shares include venture capital firm Sequoia Capital, private equity firm Thoma Bravo, Singapore’s Temasek Holdings and the Ontario Teachers Pension Plan, according to a court filing last year, according to Bloomberg.
Celebrities like Tom Brady and his ex-wife Gisele Bundchen also hold common stock.
Creditors also missed out on a massive surge in cryptocurrency prices this year because their claims are set to date when FTX files its insolvency case in 2022 under U.S. bankruptcy rules.
Since then, cryptocurrency prices have increased significantly.
John Ray took over as CEO of FTX when it collapsed. “All we can do as a bankruptcy team is monetize the value and distribute it,” he said, noting that no other bankruptcy case has involved so many claimants. REUTERS
“I’m actually only getting 25% of my Bitcoin back, and that will take many years,” said U.K.-based Arush Sehgal, a member of the FTX unsecured creditors’ committee who had more than $4 million stuck on the exchange went under when it was.
However, the news is lately driving up the price of credit applications, with some now trading at more than 100% of face value, sources told Bloomberg.
Many of these credits traded for as little as 3 cents on the dollar soon after filing for bankruptcy.
Bankman-Fried promised, after the collapse of his company, that he wanted to repay the victims in full.
“All we can do as a bankruptcy team is monetize the value and distribute it,” Ray said, according to Bloomberg, noting that no other bankruptcy case has involved so many claimants. “We cannot create coins and tokens that do not exist. And this is the best alternative.”
“I’ve never seen a case with 2 million customers,” Ray added. “I’ve never seen anything like it.”
Bankman-Fried is serving a 25-year prison sentence for stealing FTX user funds to cover an $8 billion debt at sister company and hedge fund Alameda Research in bankruptcy. Alec Tabak
The judge who handled the case, However, US District Judge Lewis Kaplan had said so during sentencing: “Defendant’s assertion that FTX’s customers and creditors will be paid in full is misleading. It’s logically flawed, it’s speculative.”
Car rental giant Hertz and American Airlines are among other large US companies that have gone through recent bankruptcy and managed to recover all their money from creditors.
Bankman-Fried advised Solana and the decentralized blockchain platform it trades on, which bears the same name, to the prison guards at the Metropolitan Detention Center in Brooklynbefore the 25-year sentence he received for stealing FTX user funds to cover an $8 billion debt at failed sister company and hedge fund Alameda Research.
According to Bloomberg, FTX has also sold dozens of its assets, including various venture capital projects such as a stake in artificial intelligence company Anthropic, in order to amass more cash and repay investors in full.