Customers of the failed cryptocurrency exchange FTX are poised to recover all of the money they lost when the firm collapsed in 2022 and receive interest on top of it, the company’s bankruptcy lawyers said on Tuesday.
The announcement was a landmark in the attempt to recover the $8 billion in customer assets that disappeared when FTX imploded virtually overnight, setting off a crisis in the crypto industry. Under a plan filed in federal bankruptcy court in Delaware, virtually all FTX’s creditors, including hundreds of thousands of ordinary investors who used the exchange to buy and sell cryptocurrencies, would receive cash payments equivalent to 118 percent of the assets they had stored on FTX, the lawyers said.
Those payments would flow from a pool of assets that FTX’s lawyers have pulled together in the 17 months since the exchange collapsed, the lawyers said.
But the recoveries come with a caveat. The amount owed to customers was calculated based on the value of their holdings at the time of FTX’s bankruptcy in November 2022. That means customers won’t reap the benefits of a recent surge in the crypto market that sent the price of Bitcoin to a record high. A customer who lost one Bitcoin when FTX imploded, for example, would be entitled to less than $20,000, even though a Bitcoin is now worth more than $60,000.
It will take months for the payouts to begin. The plan must be approved by the federal judge overseeing FTX’s bankruptcy, John T. Dorsey.
Still, a major recovery of customer money seemed unlikely when FTX collapsed after a run on deposits. Before its implosion, customers used FTX as a marketplace to buy and sell digital currencies and stored billions of dollars in crypto on the platform.
After the implosion, FTX’s founder and chief executive, Sam Bankman-Fried, stepped down, handing control to John J. Ray III, a veteran of corporate turnarounds who oversaw Enron’s unwinding.
Mr. Bankman-Fried was later convicted of a sweeping fraud in which he siphoned billions of dollars in customer savings to finance venture investments, political donations and other spending. He was sentenced to 25 years in prison in March.
After he took over, Mr. Ray described the company as the biggest mess he had ever seen. But over the next few months, he and his team began the painstaking process of tracking down the missing assets.
Some of the recoveries stemmed from successful investments that Mr. Bankman-Fried made during his FTX tenure. In 2021, the company had put $500 million into the artificial intelligence company Anthropic. A boom in the A.I. industry made those shares much more valuable. This year, Mr. Ray’s team sold about two-thirds of FTX’s stake for $884 million.
FTX also reached a deal to recover more than $400 million from Modulo Capital, a hedge fund that Mr. Bankman-Fried had financed. And lawyers for FTX filed lawsuits to claw back funds from former company executives and others, including Mr. Bankman-Fried’s parents.
Crypto experts have expected significant recoveries in the FTX bankruptcy for months. Some opportunistic investors have bought bankruptcy claims from the exchange’s customers for pennies on the dollar, hoping to profit when the payouts begin.
