FTX to eventually pay off customers once the bankruptcy plan receives court approval

FTX received court approval for its bankruptcy plan on Monday, which will allow it to repay customers in full using $16 billion in assets recovered since the collapse of the once-leading crypto exchange.

U.S. Bankruptcy Judge John Dorsey approved the closure plan at a court hearing in Wilmington, Del., saying FTX’s success made it “a model case for how to handle a very complex Chapter 11 bankruptcy proceeding.”

The plan is built on a series of agreements with FTX’s customers and creditors, US government agencies and designated liquidators to wind down FTX’s non-US operations.

The agreements allow FTX to use its assets to repay the crypto exchange’s customers first, before paying potentially competing claims filed by government regulators. FTX plans to pay 98% of its customers – those who held $50,000 or less in the exchange – within 60 days.

Once among the top crypto exchanges in the world, FTX crashed after news emerged that founder Sam Bankman-Fried took customer money to pay off risky bets made by his hedge fund, Alameda Research. Bankman-Fried was sentenced in March to 25 years in prison for stealing from FTX customers, and he has appealed his conviction.

FTX’s plan will pay its customers at least 118% of the value in their accounts as of November 2022, the date the company filed for bankruptcy.

FTX said the result was a victory for creditors, enabled by its ability to recover cash and crypto assets that had disappeared during the company’s chaotic collapse. The company also raised additional funds by selling other assets, including its investments in technology companies such as artificial intelligence startup Anthropic.

“Today’s achievement is only possible because of the experience and tireless work of the team of professionals supporting this case, who have recovered billions of dollars by rebuilding FTX’s books from the ground up and from there assembling assets from around the world,” FTX CEO John. Ray said in a statement Monday.

Consumers have had a mixed response to the plan, with many expressing disappointment that FTX’s decline caused them to miss out on a strong rebound in crypto prices since the market bottomed out in 2022.

Some customers had opposed the plan, demanding higher payouts reflecting recent increases in cryptocurrency values.

David Adler, a lawyer representing four opposing creditors, said the price of one bitcoin, for example, has risen to over $63,000 from its November 2022 price of $16,000. Customers who deposited bitcoins on FTX’s exchange have a hard time accepting FTX’s claim that they are getting a 100% recovery based on those lower prices from two years ago, Adler said.

FTX said it was not possible to simply return the crypto assets that customers had deposited because the customer assets were gone, misappropriated by Bankman-Fried.

At the time of the bankruptcy filing, FTX.com held just 0.1% of the bitcoins its customers believed they had deposited into the exchange, according to the company. One of FTX’s financial advisers, Steve Coverick, testified on Monday that it would be “very expensive” to buy billions of crypto assets on the open market in order to repay customers with the same types of cryptocurrencies they had before the bankruptcy.