FTX Has The Potential To Return Funds To Customers And Creditors. As former FTX founder Sam Bankman-Fried prepares to face sentencing next month on criminal fraud charges related to FTX in 2022, former FTX customers may get compensation.
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Quoted from CNBC, written Monday (12/2/2024), Sam Bankman-Fried, who spent the rest of his life behind bars, was found guilty in November on seven criminal charges. This happened after around USD 10 billion in customer funds from the company disappeared.
Some of the money was used to pay for former FTX founder Sam Bankman-Fried’s luxurious lifestyle. However, most of it was used for other investments which have recently increased in value dramatically.
Last week, lawyers representing FTX told a judge in Delaware that FTX hopes to return to paying customers and creditors with valid claims.
“There is still a lot of work and risk involved in returning all the money to clients, however, the team has a strategy to get there,” said FTX Attorney Andrew Dietderich.
This is a welcome development for the thousands of customers (reportedly up to 1 million) who collectively lost billions of US dollars due to the collapse of FTX 15 months ago, when the crypto exchange went bankrupt within days.
As the crypto industry including FTX is under-regulated and deemed unsafe, clients face the real possibility that much of their money has evaporated. Many hedge funds failed and lenders lost almost everything during the crypto winter of 2022.
Bankman-Fried never believed his company’s situation was that bad. Even as federal regulators and prosecutors uncovered evidence showing the 31-year-old entrepreneur and his top team had stolen billions of US dollars from customers’ wallets over the years. Bankman-Fried insisted all the money was still accessible.
“FTX US remains fully solvent,” Bankman-Fried wrote on Substack on January 12, 2023 while she was under house arrest at her parents’ home in Palo Alto, California.
He said, FTX must be able to return all customer funds.
For months, new FTX CEO John Ray III and his team of restructuring advisors have been recovering cash, luxury property and crypto and tracking lost assets.
FTX Has The Potential To Return Funds To Customers And Creditors. They have collected more than USD 7 billion, and that does not include valuables in the form of gifts worth USD 26 million, and the property of Bankman-Fried’s parents worth USD 700 million which was left to K5 Global and founder Michael Kives who invested FTX cash in companies such as SpaceX. Some of those investments experienced drastic spikes.
FTX had been negotiating with bidders about a potential reboot of the company, but the effort was abandoned last month.
Speaking to CNBC, Braden Perry, who was once a senior attorney at the Commodity Futures Trading Commission, said the decision to pay back users in full came after abandoning efforts to restart the FTX crypto exchange and support it from focusing on liquidating assets to make customers whole.
Getting actual money back into customers’ hands is still a challenge. Although much value has been recovered and much more remains to be gained, dividing large amounts of cash is a complicated process in bankruptcy, especially when much of the money is in non-traditional and illiquid assets.
Even Ray had doubts at the start of the process. At the end of 2022, he said, in the end, his party would not be able to recover all the losses here.
What Ray didn’t expect was a big market rebound. When he made that statement, crypto was mired in a bear market, with bitcoin trading at around USD 16,000, currently above USD 47,000.
In September, the bankruptcy team released a status report showing FTX had digital assets worth USD 3.4 billion. More than 1.1 billion came from investments in Solana.
Solana belongs to a category called sam coins, a group that also includes Serum, a token created and promoted by FTX and hedge fund Alameda Research.
After FTX’s bankruptcy issues were resolved, Solana experienced a huge price increase, and continued to strengthen after the September report. Since the end of that month, the number has jumped fivefold.
Meanwhile, FTX’s bitcoin stash, which was worth USD 560 million at the time of the September report, is currently worth USD 1 billion.
Bankman-Fried’s investments are not limited to crypto. He also uses client money to back startups like Anthropic, an artificial intelligence company founded by former OpenAI employees. FTX invested $500 million in Anthropic in 2021, before the generative AI boom. Anthropic’s valuation reaches $18 billion in December 2023, meaning about 8% of FTX’s stake is worth about $1.4 billion.
FTX Has The Potential To Return Funds To Customers And Creditors. During Bankman-Fried’s criminal trial in New York, Judge Lewis Kaplan rejected the defense’s request to be allowed to say that FTX’s investment in Anthropic was a smart bet. According to this court filing, FTX wants to sell its Antropic holdings.
