FTX Eyes Return of $9 Billion in Customer Funds through Settlement Proposal
In a recent development in the world of cryptocurrency, FTX, a prominent exchange platform, has made an intriguing proposal to its customers. The proposal revolves around the return of over $9 billion in customer funds through a strategic settlement plan. If you are an FTX customer who held more than $250,000 on the platform just nine days before its declaration of bankruptcy, this article is essential reading for you. Let’s delve into the details of this significant proposal and what it could mean for FTX customers.
Understanding the Situation
FTX, like many other cryptocurrency platforms, faced financial turmoil, resulting in its bankruptcy. However, what sets FTX apart is its approach to addressing this situation. According to an announcement made on October 16, FTX is considering a unique settlement strategy that could impact customers who withdrew more money from their accounts than they initially deposited during the nine days leading up to the platform’s bankruptcy filing.
The Proposed Solution
FTX aims to resolve potential “preference” claims, a legal concept where creditors who receive payments just before a company declares bankruptcy may be required to return those funds. Under this proposal, eligible customers have two options. They can either reduce their bankruptcy claim or pay cash equivalent to 15% of the net amount they withdrew during the crucial nine-day period.
To illustrate, if you withdrew $10,000 more than your initial deposit during that period, you would be required to repay $1,500, which is 15% of the excess amount withdrawn. This approach would effectively address any preference liability concerns.
Customer Involvement
What makes this proposal unique is that customers get a say in its approval. FTX customers can participate in a vote to determine whether to accept this proposal as part of the bankruptcy plan. If the proposal is approved, customers who choose to accept it can enjoy the assurance that they won’t have to repay the entire withdrawal amount later as a preference. Simultaneously, FTX gains cash and reduced claims, avoiding the need to pursue preference cases against individual customers.
A Bigger Picture
This proposal is just one piece of a broader plan by FTX to return more than $9 billion in customer funds by 2024 through a proposed settlement of customer property disputes. In an October 16 statement, the exchange outlined that this proposal aims to resolve customer property litigation against FTX Debtors and facilitate the confirmation of its Amended Plan by the second quarter of the next year.
Proposal Details
To gain a deeper understanding of the proposal, it’s essential to know that FTX intends to divide the assets into three pools: assets for FTX.com customers, assets for FTX US customers, and a General Pool of other assets. Additionally, FTX.com and FTX US customers could benefit from a “Shortfall Claim” on the General Pool, contingent on the estimated missing assets at their respective exchanges.
However, it’s worth noting that the estimated Shortfall Claim stands at approximately $8.9 billion for FTX.com customers and $166 million for FTX US customers. Should the bankruptcy court approve the proposal next year, customers can anticipate receiving up to 90% of the distributable value.
Customer Impact
Unfortunately, not all customers will receive their funds in full. FTX.com customers are expected to face more substantial losses compared to their FTX US counterparts. This discrepancy highlights the complexity and challenges associated with resolving a large-scale bankruptcy case in the cryptocurrency world.
FTX CEO’s Perspective
FTX CEO John J. Ray commented on the new plan, describing it as a significant milestone in the case. He emphasized that the debtors and creditors have managed to create substantial value from a situation that could have resulted in significant losses for customers.
The 15% Clawbacks
Part of the proposal involves customers who may have preference exposure associated with their claims. Customers who withdrew over $250,000 from the platform just nine days before it went bankrupt could be asked to waive 15% of their claims. However, the exchange has outlined specific exclusions, such as insiders, affiliates, customers potentially involved in commingling and misuse of customer deposits and corporate funds, and those who altered their KYC information to expedite withdrawals when withdrawals were paused as part of the proposed plan.
