FTX, the cryptocurrency exchange platform that went bankrupt in November 2022, is finally about to repay its creditors.
In October 2024, a US court approved a restitution plan that aims to distribute between USD 14.7 billion and USD 16.5 billion to customers.
This would effectively be 118% of the value investors had in their accounts at the time of FTX's bankruptcy.
The FTX bankruptcy plan envisages full repayment in fiat currency for customers at November 2022 prices.
Fiat currency represents legal tender. The main fiat currencies include the US dollar, the euro and the British pound.
This precludes payment in cryptocurrencies.
For creditors owed less than $50,000, i.e. the vast majority, repayment could take place by the end of 2024.
For large institutional creditors, repayment is envisaged in staggered installments.
FTX history
- November 2017: Alameda Research, FTX's sister trading company, was founded by Sam Bankman-Fried and Tara MacAulay.
- May 2019: FTX cryptocurrency exchange was established by Sam Bankman-Fried and Gary Wang. FTX operated as an exchange platform where cryptocurrencies could be bought and sold. The token of FTX was FTT.
- November 2022: FTX's collapse began. The downfall was triggered by a CoinDesk report that documented discrepancies regarding the exchange's financial health. At this point, it was revealed that FTX had lent more than half of its customers' funds to Alameda, which violated FTX's terms of service.
This was demonstrated by an Alameda balance sheet document, which showed a massive presence of FTT tokens.
The discovery triggered a massive sell-off of FTT, leading to a subsequent liquidity crisis for both FTX and Alameda.
Unable to cover withdrawal requests, FTX collapsed, revealing the extent of fraudulent activities.
- November 14, 2022: FTX filed for voluntary bankruptcy under Chapter 11 of the United States Bankruptcy Code.
- December 12, 2022: Sam Bankman-Fried was arrested in the Bahamas and subsequently extradited to the United States.
- November 2, 2023: Sam Bankman-Fried was found guilty on all seven counts of fraud and conspiracy.
- March 28, 2024: Sam Bankman-Fried was sentenced to 25 years in prison.
- October 7, 2024: the bankruptcy judge approved FTX's bankruptcy plan, which aims to fully reimburse customers using the $16.5 billion recovered.
The conviction resulted from the 'creative' management of client funds for risky investments executed through Alameda Research (FTX's sister trading company).
Instead of safeguarding clients' assets, FTX allowed Alameda to use these funds for risky trading strategies, investments, and personal expenses.
The charges that led to conviction
The executives were charged with moving billions of dollars from customer deposits from FTX to Alameda Research.
Alameda used these funds for risky trading strategies and to finance the personal expenses of both companies' top executives. This direct misappropriation of client money violated FTX's terms of service, which stated that client funds would be kept separate.
Investigators discovered a "backdoor" encoded in FTX's platform that allowed Alameda to withdraw customer funds from FTX without triggering any alarms in the company's standard systems.
A backdoor in computer terminology refers to a covert method of bypassing normal authentication processes to access a system, often to gain unauthorized access to data or resources on a computer.
This backdoor enabled massive unofficial and untraced money transfers between the two entities.
The consequence was the misappropriation of client funds.
Alameda's risky trading practices were supported by access to client deposits, which were treated as a personal line of credit without the clients' knowledge.
Who will be reimbursed
All those who have submitted evidence to the bankruptcy administrator proving they invested with FTX, and have been unable to recover their funds, can expect to be reimbursed.
The redemption value will be calculated based on the value of the assets at the time of bankruptcy in November 2022.
On that date, November 11, Bitcoin was trading at around $17,000.
The plan provides a bonus over the original amount, so investors are expected to receive a refund of just over 25% of the value of their lost assets.
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