Beleaguered crypto exchange FTX has secured a court order allowing them to fully repay customers using recovered assets valued at $16.5 billion. This comes after the exchange’s dramatic collapse in November 2022.

U.S. Bankruptcy Judge Approves Repayment Plan

The plan, approved by U.S. Bankruptcy Judge John Dorsey, involves settlements with various parties, including U.S. government agencies, customers, creditors, and liquidators tasked with handling FTX’s external operations.

FTX Founder’s Role and Repercussions

The exchange’s downfall stemmed from founder Sam Bankman-Fried’s alleged misuse of customer funds to cover risky bets made by his hedge fund, Alameda Research. Bankman-Fried received a 25-year prison sentence in March 2024 for these actions.

Repayment Details and Customer Response

FTX estimates having $14.7 billion to $16.5 billion available for repayments, translating to at least 118% of the value customers held in their accounts as of November 2022. Importantly, the court granted permission for FTX to prioritize customer repayment over claims from government regulators.

The plan aims to repay 98% of customers, especially those holding accounts with less than $50,000, within 60 days after the effective date. However, customer response has been mixed. While some welcome the repayment, others express disappointment over missing out on potential gains due to the market’s recovery since FTX’s collapse. Some customers objected to the plan, seeking higher repayments reflecting recent cryptocurrency price increases.

FTX Justifies Repayment Strategy

FTX contends that returning the original crypto assets deposited by customers wasn’t possible due to misappropriation by Bankman-Fried. At the time of filing for bankruptcy, FTX allegedly held only 0.1% of the Bitcoin customers believed they owned. Repurchasing that amount of crypto on the open market to match customer holdings was deemed “exorbitantly expensive” by FTX’s financial advisors.

FTX’s Legal and Regulatory Aftermath

Following FTX’s collapse, various investigations and legal proceedings unfolded. These included:

• Criminal investigation launched by the Royal Bahamas Police Force.
• Hearings planned by the U.S. House Committee on Financial Services.
• Lawsuit considerations by venture capital firms against Bankman-Fried.
• Charges filed against Bankman-Fried by the US Attorney’s Office for alleged fraud, money laundering conspiracy, and campaign finance violations.
• Guilty pleas entered by several former FTX executives, including Gary Wang (co-founder), Caroline Ellison (Alameda CEO), and Nishad Singh (FTX’s former engineering director).
• A $12.7 million compensation order issued by a US court to FTX, marking the “largest such recovery” in the history of the Commodity Futures Trading Commission.

Conclusion

FTX’s court-approved plan to fully repay customers, while a positive development, highlights the lingering effects of the company’s collapse. The mixed customer response underscores the complexities and challenges associated with such large-scale repayments in the volatile cryptocurrency space.