Bankrupt cryptocurrency exchange FTX and the US Commodity Futures Trading Commission (CFTC) have reached a monumental settlement agreement worth $12.7 billion. This closes a significant chapter in the saga surrounding FTX’s collapse, resolving a lawsuit that stretched back 19 months.
The agreement, revealed in a July 12th court filing, needs only court approval to become final. Both parties, represented by CFTC senior trial attorney Carlin R. Metzger and John J. Ray III, CEO of FTX, view the settlement as a crucial step in the ongoing bankruptcy proceedings.
In a joint statement, Metzger and Ray III emphasized the benefits of the settlement. It “resolves ongoing litigation and disputes” with a major creditor, the CFTC, and avoids further costly and time-consuming legal battles. More importantly, it significantly reduces the risk of diminished assets available for distribution to creditors.
Let’s rewind to December 2022. The CFTC filed a lawsuit against FTX, its former CEO Sam Bankman-Fried, and Alameda Research, its affiliated trading firm. The lawsuit alleged fraudulent practices and misrepresentation on the part of FTX. The CFTC claimed FTX marketed itself as a legitimate digital commodity platform while engaging in deceptive activities.
The CFTC opted not to impose an additional civil monetary penalty. FTX justifies this decision by citing the ongoing criminal proceedings against its former executives and the potential for significant liability arising from those cases.
FTX acknowledges the CFTC’s position as the “most significant single creditor” in its Chapter 11 bankruptcy case. This makes the settlement even more critical for the successful resolution of the bankruptcy process.
A court hearing to finalize the settlement is scheduled for August 6th in the Bankruptcy Court for the District of Delaware.
Furthermore, FTX has proposed a reorganization plan that offers a potentially lucrative outcome for a large portion of its creditors. This plan would see a 118% return for 98% of creditors with claims under $50,000, based on the value of assets at the time of FTX’s bankruptcy filing in November 2022.
However, a significant number of creditors have expressed their desire for a payout in cryptocurrency, rather than the US dollar value proposed in the plan. This preference stems from the substantial increase in the cryptocurrency market cap (166%) since FTX’s bankruptcy filing.
Creditors are currently voting on their preferred payout method. The voting window closes on August 16th, with Judge John Dorsey expected to make a final decision by October 7th.
This settlement agreement marks a significant milestone for both FTX and the CFTC. It offers a pathway towards resolving the CFTC’s claims and paves the way for a potential resolution of the FTX bankruptcy case.
