Bankrupt virtual currency exchange FTX and the US Commodity Futures Trading Commission (CFTC) have reportedly agreed to a $12.7 billion settlement.
The said agreement between FTX and the CFTC is currently awaiting approval from a Delaware Judge.
The parties have been actively engaging in discussions during last few weeks. This, according to court papers submitted on July 12, 2024 to the US Bankruptcy Court for the District of Delaware.
As noted in the documents, the Proposed Settlement is an integral and valuable component of the Debtors’ “proposed chapter 11 reorganization plan.”
The papers also noted that it reportedly “resolves ongoing litigation and disputes with one of the largest creditors of the Debtors, avoids the cost and delay of further litigation, and mitigates a significant risk of diminution of the assets available for distribution to creditors.”
Notably, the CFTC had filed a complaint a couple years back against the crypto exchange operator, ex- FTX Chief Executive Officer Sam Bankman-Fried as well as Alameda Research with fraud while noting that their conduct resulted in unsuspecting clients losing around $8 billion in funds.
The CFTC had, at first, sought a massive $52.2 billion claim, the latest settlement papers revealed.
According to the terms of the settlement, the CFTC reportedly agreed to obtain nothing provided that FTX adheres to its reorganization efforts.
As a result, FTX is expected to pay as much as $12.7 billion to creditors, but this is conditional and based on whether sufficient funds will be made available.
Andy Dietderich, partner at Sullivan & Cromwell and lead counsel for the FTX Debtors, explained that in this latest settlement, the CFTC reportedly “foregoes its own recovery against FTX in order to supplement the recoveries of customers and cryptocurrency lenders beyond the levels typical in chapter 11 cases.”
The recent settlement agreement comprises $8.7 billion in restitution as well as $4 billion in disgorgement.
As per the update, the $4 billion in disgorgement is to be subordinated to the “prior payment of claims of all creditors.”
FTX has stated that the CFTC is the “most significant” single creditor mentioned in the Ch 11 bankruptcy court cases.
They added that given the conduct, guilty pleas and convictions of the FTX Insiders, the Debtors face “very substantial potential liability to the CFTC.”
As confirmed in the announcement, a hearing on the said settlement motion is now scheduled for August 6, 2024.
Notably, FTX had filed for bankruptcy back in 2022.
The debtors had also proceeded to share their detailed reorganization plan and noted that they intended to provide 98% of its creditors as much as 118% of permitted claims.
As per the terms, creditors with permissable claims valued at less than $50,000 could qualify for the 118% compensation following approval from the courts.
Several entities, which reportedly include those behind FTX’s biggest creditors, have now decided to oppose the suggested plan and stated that the estate needs to pay out actual digital currencies instead of the dollar value at the time when the exchange had filed for bankruptcy.
Votes on the proposed plan must be submitted by August 16, 2024.
As widely reported, SBF had been found guilty back in November 2023 of major criminal counts, which includes two counts each of wire fraud as well as conspiracy to commit wire fraud.
The disgraced former FTX CEO was then sentenced to around 25 years in prison. The US Securities and Exchange Commission (SEC) has also brought fraud allegations against SBF.