FTX and the CFTC agree to a $12.7 billion settlement after months of negotiations

FTX, the bankrupt cryptocurrency exchange, has reached a significant settlement agreement with the U.S. Commodity Futures Trading Commission (CFTC) for $12.7 billion, pending approval from a Delaware judge. This agreement comes after months of negotiations, as indicated in a court document filed on July 12 in the U.S. Bankruptcy Court for the District of Delaware.

The proposed settlement is a crucial element of FTX's chapter 11 reorganization plan. It aims to resolve ongoing litigation and disputes with one of the largest creditors of the debtors, thereby avoiding further litigation costs and delays, and mitigating the risk of reducing the assets available for distribution to creditors. The CFTC had lodged a complaint in 2022 against FTX, its former CEO Sam Bankman-Fried, and the affiliated company Alameda, accusing them of fraud that resulted in customer losses amounting to $8 billion. Initially, the agency pursued a $52.2 billion claim, which has been scaled down in the proposed settlement.

Under the terms of the settlement, the CFTC has agreed to forgo any recovery, provided FTX adheres to its reorganization plan. Consequently, FTX will allocate up to $12.7 billion to creditors, contingent on the availability of funds. The settlement delineates $8.7 billion for restitution and $4 billion for disgorgement, with the disgorgement amount subordinated to the payment of claims from all other creditors.

Andy Dietderich, a partner at Sullivan & Cromwell and lead counsel for the FTX debtors, noted that this unique settlement allows the CFTC to forego its recovery in favor of enhancing the recoveries for customers and cryptocurrency lenders beyond typical chapter 11 case levels. FTX acknowledged in the court filing that the CFTC is the most significant single creditor in these bankruptcy cases. The filing also emphasized the substantial potential liability FTX faces due to the conduct and guilty pleas of the FTX insiders.

A hearing to discuss the settlement motion is scheduled for August 6. FTX filed for bankruptcy in late 2022 and revealed its reorganization plan in May, which proposed giving 98% of its creditors at least 118% of allowed claims. Creditors with allowed claims below $50,000 are eligible for this compensation upon court approval. However, some parties, including representatives of FTX's largest creditor group, have opposed the plan, arguing that the estate should pay out cryptocurrencies in kind rather than their dollar value at the time of bankruptcy. Votes on the reorganization plan are due by August 16.

FTX, the bankrupt cryptocurrency exchange, has reached a significant settlement agreement with the U.S. Commodity Futures Trading Commission (CFTC) for $12.7 billion, pending approval from a Delaware judge. This agreement comes after months of negotiations, as indicated in a court document filed on July 12 in the U.S. Bankruptcy Court for the District of Delaware.

The proposed settlement is a crucial element of FTX's chapter 11 reorganization plan. It aims to resolve ongoing litigation and disputes with one of the largest creditors of the debtors, thereby avoiding further litigation costs and delays, and mitigating the risk of reducing the assets available for distribution to creditors. The CFTC had lodged a complaint in 2022 against FTX, its former CEO Sam Bankman-Fried, and the affiliated company Alameda, accusing them of fraud that resulted in customer losses amounting to $8 billion. Initially, the agency pursued a $52.2 billion claim, which has been scaled down in the proposed settlement.

Under the terms of the settlement, the CFTC has agreed to forgo any recovery, provided FTX adheres to its reorganization plan. Consequently, FTX will allocate up to $12.7 billion to creditors, contingent on the availability of funds. The settlement delineates $8.7 billion for restitution and $4 billion for disgorgement, with the disgorgement amount subordinated to the payment of claims from all other creditors.

Andy Dietderich, a partner at Sullivan & Cromwell and lead counsel for the FTX debtors, noted that this unique settlement allows the CFTC to forego its recovery in favor of enhancing the recoveries for customers and cryptocurrency lenders beyond typical chapter 11 case levels. FTX acknowledged in the court filing that the CFTC is the most significant single creditor in these bankruptcy cases. The filing also emphasized the substantial potential liability FTX faces due to the conduct and guilty pleas of the FTX insiders.

A hearing to discuss the settlement motion is scheduled for August 6. FTX filed for bankruptcy in late 2022 and revealed its reorganization plan in May, which proposed giving 98% of its creditors at least 118% of allowed claims. Creditors with allowed claims below $50,000 are eligible for this compensation upon court approval. However, some parties, including representatives of FTX's largest creditor group, have opposed the plan, arguing that the estate should pay out cryptocurrencies in kind rather than their dollar value at the time of bankruptcy. Votes on the reorganization plan are due by August 16.

Bankman-Fried was found guilty in November 2023 of seven criminal counts, including wire fraud and conspiracy to commit wire fraud, resulting in a nearly 25-year prison sentence. He also faces fraud charges from the U.S. Securities and Exchange Commission. This settlement agreement represents a critical step towards resolving FTX's complex bankruptcy proceedings and providing some restitution to its creditors.