Cryptocurrency exchange FTX has amassed billions of dollars more than it needs to cover what customers lost in its November 2022 collapse, setting them up to receive full recoveries, plus interest, a rare outcome in U.S. bankruptcy proceedings.
Lower-ranking creditors typically receive just pennies on the dollar for their holdings, but FTX benefitted from a strong rally in cryptocurrencies including Solana, a token heavily backed by convicted fraudster and FTX founder Sam Bankman-Fried. The company has also sold dozens of other assets, including various venture-capital projects like a stake in the artificial-intelligence company Anthropic.
"In any bankruptcy, this is just an unbelievable result," said FTX Chief Executive Officer, John Ray, who took over the firm when it collapsed.
Prices for FTX claims jumped Wednesday morning to 101 cents on the dollar from 95 cents last week, according to Cherokee Acquisition.
Once it finishes selling all of its assets, FTX will have as much as $16.3 billion in cash to distribute, according to a company statement. It owes more than 2 million customers and other non-governmental creditors about $11 billion.
The latest figures underscore the surprising outcome for FTX, whose collapse drew comparisons to Enron's fraud-fueled downfall and the unraveling of Bernie Madoff's Ponzi scheme. Earlier this year, the company had about $6.4 billion in cash.
There have only been a handful of large corporate U.S. bankruptcies that saw creditors get all their money back in recent times. In 2021, car rental company Hertz exited bankruptcy with money left over to repay shareholders, following a strong run-up in used car prices. In 2013, American Airlines Group's parent company also exited bankruptcy with a plan to gave a distribution to shareholders and repay unsecured creditors in full.
Although all debts will be paid in full, plus interest, nothing will be leftover for equity holders, according to court documents filed Tuesday evening in federal court in Wilmington, Delaware, where the FTX case is being handled. In bankruptcy, company owners can't collect anything until all debts have been paid in full. In this case, U.S. regulators and the Internal Revenue Service have claims that are big enough to likely wipe out shareholders.
FTX's major equity holders include Sequoia Capital, Thoma Bravo, Singapore's Temasek Holdings Pte and the Ontario Teachers Pension Plan, according to a court filing last year. Individuals including Tom Brady and Gisele Bündchen also hold common shares.
Big recoveries
The company, now run by restructuring advisers, has also proposed setting up a fund to pay some creditors, including those who lent FTX crypto, with money that otherwise would have gone to government regulators. They've also been tracking down the company's assets and untangling a web of accounts scattered around the world.
Those recoveries have been given a massive jolt by the crypto rebound, which has caused the price of Bitcoin to roughly quadruple since late 2022.
Depending on the type of claim they hold in the case, some creditors could recover as much as 142% of what they are owed. The vast majority of customers, however, will likely get 118% of what they had on the FTX platform the day the company entered Chapter 11 bankruptcy. Payouts are likely several months away, as FTX winds its way through the final stages of the bankruptcy case.
Still, the prospect of such huge wins are boosting the price of creditor claims, some of which are now being traded at more than 100% of their face value, according to two people familiar with the transactions. Many of those claims traded for as little as three cents on the dollar in the immediate aftermath of the bankruptcy.
Crypto's big revival
The rising value of claims also reflects a remarkable rebound in crypto markets. Bitcoin, for example, has rallied to above $62,000 from around $16,000 just after FTX went bankrupt.
That's fueled discontent among some creditors, who argue that they're being shortchanged even though they'll eventually recover more than the dollar value of their claims.
"In reality am only getting 25% of my Bitcoin back, and that will be over many years," said UK-based Arush Sehgal, a member of the FTX unsecured creditors' committee who had more than $4 million stuck on the exchange when it toppled.
Sehgal and other crypto holders missed out on an increase in prices because under U.S. bankruptcy rules their claims are fixed to the date FTX filed its insolvency case in 2022. Since then crypto assets have dramatically risen in value.
"All we can do as a bankruptcy team is monetize the value and distribute it out," Ray said in an interview. "We can't create coins and tokens that aren't there. And this is the next best alternative."
In a document filed Tuesday, restructuring advisers laid out new details of their proposal to distribute the cash to creditors and end the Chapter 11 case. Known as a disclosure statement, the document is designed to help creditors vote on the proposed payout plan.
Such a vote is unprecedented in bankruptcy. No other case has involved so many claimants, Ray said. There are more than 2 million customers and other creditors eligilbe to vote.
"I've never seen a case with 2 million customers," Ray said. "I've just never seen anything close to it."
In the Enron bankruptcy, which Ray also oversaw, creditor claims were much higher — around $50 billion — but the number of people demanding repayment was only in the tens of thousands, Ray said.
U.S. Bankruptcy Judge John Dorsey will take that vote into consideration when he decides whether to approve the plan sometime later this summer. Dorsey is scheduled to hold a hearing in late June on the disclosure statement and the voting procedures.
FTX filed bankruptcy in November 2022 after Bankman-Fried shut down the company's crypto-trading platform and handed control to insolvency experts. Bankman-Fried was later convicted of fraud.
— With assistance from Lucca de Paoli and Sidhartha Shukla.
