Payouts for FTX customers deficit claims could reach $9 billion by mid-2024

By: Michael Wilson

October 17, 2023 7:15 AM

Creditors of FTX.com might get a deficit claim of $8.9 billion, while those of FTX.US could receive $166 million under the terms of the proposed settlement.

Over 90% of funds held by customers of defunct crypto exchanges FTX and FTX.US may be returned to those consumers by the end of the second quarter of 2024, according to a settlement agreement offered by FTX creditors and debtors.

After "extensive discussions" with the unsecured creditors' committee, a committee of non-United States consumers, and class action plaintiffs over customer property problems, the FTX debtors said on October 17 that they had reached a "major milestone" in their Chapter 11 lawsuit.

On October 16 (for background), FTX debtors informed a U.S. bankruptcy court in Delaware of their intention to settle. However, a formal petition for the court's blessing must be submitted by the 16th of December.

The "shortfall claim" is a part of the revised plan that assumes FTX.com and FTX.US clients will receive 90% of the total distribution.

The shortfall claim for FTX.com is projected to be over $8.9 billion, while that for FTX.US is projected to be around $166 million. If the bankruptcy court approves, FTX anticipates disbursing these monies by the end of the second quarter of 2024.

The conditions of the settlement were acceptable to FTX's CEO and chief restructuring officer, John J. Ray III:

"The debtors and their creditors have together created enormous value from a situation that easily could have been a close to total loss for customers, starting in the most challenging financial disaster I have seen."

FTX will separate funds for its FTX.com customers, its U.S. customers, and a broad pool of other assets under the new arrangement. However, the shortfall claim only covers the first two categories.

To strike a fair balance between the rights of customer and non-customer creditors among U.S. and foreign debtors, the Committee, the Debtors, the ad hoc customer committee, and other representatives negotiated the terms of the Plan Term Sheet.

However, FTX creditors expect that neither exchange would fully compensate its clients, with FTX.com bearing a disproportionate share of the losses.

Meanwhile, analysts highlighted that a portion of the planned scheme would reduce consumers' claims by 15% if they withdrew more than $250,000 from the exchange within nine days of bankruptcy.

FTX borrowers emphasized that claims valued at less than $250,000 would not be reduced.

"If a customer's choice settlement during the nine-day period is less than $250,000, they can accept the settlement without having their claim or payment reduced."

However, the new plan allows FTX to exclude from the settlement any employees, partners, or customers who may have been aware of the mixing of consumer deposits and company funds.

Sam Bankman-Fried, the former CEO of FTX, has been on trial for fraud related to his alleged role in the company's downfall and subsequent bankruptcy for the past two weeks.