Recent developments in the FTX bankruptcy case have sparked debate and anxiety within the crypto community. Initially, creditors were expected to recover 10-15% of their assets, but a new plan has emerged that allows shareholders to access $230 million before creditors.
Following rumors that FTX would begin distributing funds to creditors and customers on September 30, the price of FTX’s FTT token surged over 80% within 24 hours, peaking at $2.71 before settling at $2.14.
Controversial Bankruptcy Filing Changes
Previously, FTX’s bankruptcy plan, which had overwhelming preliminary support from creditors, promised at least 118% of their claims in cash. However, on September 28, creditor representative Sunil Kavuri revealed revised bankruptcy documents stating that refunds would be based on the value of cryptocurrencies at the time of FTX’s filing. As a result, creditors may only receive 10-25% of their holdings, which has led to significant disappointment and anger among them.
Kavuri expressed that many FTX users continue to suffer emotional distress due to their lost savings. The sentiment among creditors was overwhelmingly negative, with one remarking on the deceitful timing of the updates and another questioning the legal protections for investors.
Shareholders Set to Benefit from Government Seizures
Compounding the frustration is a newly disclosed agreement whereby 18% of the proceeds from government seizures will be allocated to a fund exclusively benefiting certain shareholders, potentially amounting to $230 million. This agreement was finalized on August 28, just days before the deadline for creditor votes, and was not disclosed until September 27, raising concerns about transparency.
Creditors have labeled this move as not only unfair but potentially criminal, as they were unaware of this provision when voting in favor of the plan. Typically, creditors receive compensation before shareholders in bankruptcy cases.
Rumors of Distribution Begin on September 30
Additionally, rumors circulating on social media suggested that FTX would start distributing funds on September 30, which contributed to the rise in the FTT token’s value. However, these claims were debunked, as the repayment plan has yet to receive court approval, pending a hearing.
The confirmation hearing for FTX’s restructuring plan is set for October 7 at 10:00 AM EST. During this hearing, Judge John Dorsey of the U.S. Bankruptcy Court in Delaware will decide whether to approve the plan. If confirmed, FTX will compensate over 98% of customers and unsecured creditors at the dollar value of their crypto assets as of November 11, 2022.
Creditor representative Sunil Kavuri disclosed that approximately $5.5 billion in claims comes from non-crypto users, who are unlikely to invest in crypto again. Claimants with amounts under $50,000 may see distributions by the end of 2024, while those with claims over $50,000 may not receive their payouts until early or mid-2025.
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