FTX Creditors Could Receive ’10-25% of Their Crypto Back’ — Creditor

Highlights:

• FTX creditor activist Sunil Kavuri estimates that FTX could reimburse 10% to 25% of lost crypto.
• The restructuring plan faces opposition, prioritizing equity holders over creditor repayments.
• The upcoming court hearing on October 7 may trigger significant market volatility.

FTX creditors hope for full repayment after the exchange’s November 2022 collapse. With the platform’s restructuring decision approaching, the form of the payments is still uncertain.

FTX creditor activist Sunil Kavuri estimates customers could get between 10% and 25% of their crypto back. Kavuri explained that reimbursements would be based on the petition date when cryptocurrency prices were much lower. For context, Bitcoin was around $16,000 when the legal petition was filed. This estimation comes amid ongoing concerns about the exchange’s restructuring process and the nature of the payouts—whether they will be in crypto or cash—as the October 7 court hearing approaches.

FTX is transferring 18% of DOJ forfeiture funds up to $230m to FTX equity holders (Plan supplement)

FTX crypto holders are getting 10% to 25% of their crypto back pic.twitter.com/3f6BePpoNU

— Sunil (FTX Creditor Champion) (@sunil_trades) September 28, 2024

This update arrives as the defunct exchange allocates 18% of the forfeiture funds ($230 million) to equity holders, raising concerns for some. Kavuri expressed doubts, saying, “This is just a rough estimate of what the petition date payout could look like compared to today’s value.”

FTX creditor and Bitcoin maximalist Crypto Notte commented:

“Venture funds that bought equity in the business are getting money back, and the money is being taken away from the creditors, e.g., customers who got their money stolen. You thought bankruptcy could not get more criminal, yet there it is.”

FTX Expected to Begin Repayments in October

The update comes amid growing speculation that FTX will start distributing $16 billion to its creditors in October. However, this remains unconfirmed, as the restructuring plan for the exchange’s customers is still awaiting court approval. The court hearing is scheduled for October 7.

FTX Restructuring Plan Faces Legal Hurdles

The restructuring plan has encountered substantial opposition. Last quarter, a $12.7 billion repayment agreement was approved, but the court barred both FTX and its sister company, Alameda Research, from trading digital assets. More recently, the U.S. Trustee expressed concerns, advocating for a fairer distribution among creditors. Additionally, FTX’s own creditors, including Kavuri, have filed objections, arguing that the current plan unfairly prioritizes equity holders over customers.

The #US Trustee and a group of creditors have challenged #FTX's amended reorganization plan, citing concerns over excessive legal protections for estate administrators and unfair treatment of smaller creditors.

The objections also highlight issues related to a data breach and… pic.twitter.com/eU0QpHFOfD

— TOBTC (@_TOBTC) August 25, 2024

The main issue is the broad exculpation clauses. Creditors also worry about the lack of an “in-kind” distribution option. They believe this option would help lower taxes. They argue that requiring cash payouts could create unnecessary tax costs for recipients. The Securities and Exchange Commission (SEC) agrees with these concerns. The SEC shares these concerns, criticizing the plan and demanding the removal of discharge provisions, warning that it will oppose the plan if changes aren’t made.

The U.S. #SEC has warned that it might challenge the repayment plan of the defunct #crypto exchange #FTX, particularly if the repayments are made using #stablecoins.

While the SEC acknowledged that such payments may not be illegal, it reserves the right to contest transactions… pic.twitter.com/mlFHrV63Ar

— TOBTC (@_TOBTC) September 2, 2024

On the market front, FTX still holds over $1 billion in Solana tokens, and any liquidation could negatively impact Solana’s value. Meanwhile, if payouts begin, new capital could flow into Bitcoin and altcoins, significantly affecting their prices.

As the court date approaches, both creditors and market participants are anxious, waiting to see how the proceedings will unfold and their impact on the broader crypto landscape. If approved, the plan could stabilize the situation or create new volatility in an already turbulent market.