Judge Approves $12.7 Billion Settlement for FTX Creditors

August 08, 2024

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A New York judge has granted final approval for the defunct cryptocurrency exchange FTX and its sister trading firm Alameda Research to repay $12.7 billion to FTX creditors. This decision is part of a settlement agreement with the United States Commodity Futures Trading Commission (CFTC).

On August 7, United States District Judge Peter Castel officially sanctioned the $12.7 billion consent order. The exchange and Alameda initially agreed to this settlement on July 12, but it awaited final court approval, which Judge Castel has now provided. This approval concludes a 20-month-long lawsuit filed by the CFTC against the firms.

No Civil Monetary Penalty

One notable aspect of this settlement is that the CFTC did not seek a civil monetary penalty. This means that the entire $12.7 billion will be directed toward repaying FTX creditors, a move that will potentially ease the financial pain of those affected by the collapse of the exchange.

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Specifically, FTX and Alameda will repay $8.7 billion to investors who were defrauded by the exchange’s founder, Sam Bankman-Fried. An additional $4 billion will be disgorged as part of the order.

Decision on Payout Method Still Pending

In addition to the court-ordered repayments, FTX’s reorganization plan proposes a 118% return for 98% of its creditors—those with claims under $50,000—based on the US dollar value of asset prices at the time of FTX’s bankruptcy filing in November 2022.

Creditors are currently voting on their preferred method of payment, with the deadline for lodging their requests set for August 16. The final decision on the payout method will be made by US Bankruptcy Court Judge John Dorsey on October 7.

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Operational Restrictions

Beyond the financial restitution, the consent order imposes significant operational restrictions on FTX and Alameda Research. Both entities are permanently banned from “cheating or defrauding” commodity users.

They are also prohibited from engaging in transactions involving digital asset commodities and from buying or selling digital asset commodities on behalf of third parties.

The CFTC’s lawsuit, initiated in December 2022, accused the exchange, its former CEO Sam Bankman-Fried, and Alameda Research of fraud and misrepresentation, alleging that the firm marketed itself deceitfully as a “digital commodity asset platform.”

FTX Collapse Saga

The backdrop to this legal battle is the dramatic fall of FTX and Alameda Research in late 2022. Concerns over the firms’ financial practices and speculative cryptocurrency token valuations led to a surge in customer withdrawals, pushing both entities into bankruptcy.

This collapse led to a flurry of civil and criminal charges against Bankman-Fried and top executives. SBF recently faced a sentence of 25 years in prison for orchestrating a multibillion-dollar fraud scheme.