FTX Creditors Expect Only 10% to 25% of Crypto Holdings to Be Recovered

FTX creditors are bracing for steep losses as they may recover only 10% to 25% of their cryptocurrency holdings.

The court filing, shared by Sunil Kavuri, an FTX creditor turned activist, has sparked outrage within the FTX community, with many questioning the fairness of the bankruptcy process.

The payouts are calculated based on the value of assets on the "petition date" — the date when FTX filed for bankruptcy in November 2022. For example, a creditor who held 1 BTC — worth around $16,000 during FTX's bankruptcy — would only receive that amount in cash under the current plan, representing approximately 25% of Bitcoin's current value of nearly $64,000.

Creditors argue that cash-based payouts fail to accurately compensate for their losses, whereas in-kind repayments would offer a fairer resolution.

"FTX customers feel scammed, robbed again, grappling with severe mental health issues, including anxiety, panic attacks, and the breakdown of families, as their life savings remain out of reach,” Kaveri told The Defiant.

Other FTX creditors and individuals echoed Kavuri’s sentiment.

One user who goes by @noncesensicalll on X commented, "Disgusting behavior," while another stated, “Disgraceful, we have been scammed twice!”

The FTX token (FTT) is down 16% in the last 24 hours.

The FTX estate did not respond to a request for comment from The Defiant.

Shareholders Benefit from Vote

A significant point of contention in the ongoing bankruptcy saga is the revelation that shareholders will receive a substantial portion of the forfeiture proceeds.

FTX’s June filing shows that the company’s assets include approximately $1.19 billion in recoverable funds.

Under the plan's terms, 18% of the government-forfeited assets would be allocated to the 'Preferred Shareholder Remission Fund,’ which totals around $214.2 million — close to the $230 million cap, as per the filing.

Kavuri criticized the inclusion of this provision, noting that creditors were unaware of these details when they voted to approve the plan in mid-August.

“After a plan vote that creditors didn’t participate in, the debtors have now decided to give up to $230 million of forfeiture funds — to FTX equity holders," Kavuri said. "Equity holders are the last in line to be repaid and should not receive anything until other creditors are fully compensated. FTX customers are not being made whole because the debtors are using outdated asset prices from the petition date, ignoring the property rights of customers, just as Sam Bankman-Fried did before the bankruptcy.”

The troubles for FTX began when the exchange filed for bankruptcy on Nov. 11, 2022, following revelations of mismanagement of funds and allegations of transferring customer assets to its sister trading firm, Alameda Research. The collapse of FTX triggered an industry-wide shake-up, leading to legal investigations and the resignation of and arrest of its founder, Sam Bankman-Fried.

In the wake of the bankruptcy, the FTX estate reached a deal on Sept. 6 with Emergent Technologies, an entity founded by Bankman-Fried, to secure over $600 million in Robinhood shares for distribution to creditors.

The estate holds assets worth approximately $1.19 billion, including $626 million seized from Emergent, $379 million from other cryptocurrency exchanges, and $150 million from accounts registered under FTX DM, as well as two private planes valued at around $35 million.

Court Approval for Payouts

The distribution plan is still pending court approval, and the next hearing is set for Oct. 7, with Judge John T. Dorsey of the United States Bankruptcy Court for the District of Delaware overseeing the process. If the plan is approved, creditors with claims under $50,000 could begin receiving payments by the end of 2024, while those with more significant claims may have to wait until the first or second quarter of 2025.

The FTX estate has clarified that no distributions can begin until the court officially approves the plan. The estate is legally required to report the results of the creditor vote by Sept. 30, one week before the Oct. 7 confirmation hearing. Should the plan be approved, the estate will also have until Sept. 30 to file any responses to objections.

Meanwhile, other bankruptcy cases involving crypto companies have included provisions for in-kind repayments.BlockFi, a crypto lending firm, filed for bankruptcy in November 2022. In its proposed bankruptcy plan, the company provided creditors the option to receive their distributions in crypto assets rather than forcing a cash equivalent payout.

Similarly, Genesis Global Capital, which filed for bankruptcy in January 2023, included in-kind distribution options as part of its creditor repayment plan.

In contrast, the FTX estate continues to emphasize that it will adhere strictly to a cash-based distribution model, pointing to legal and regulatory concerns under Chapter 11 bankruptcy laws.

On Aug. 30, the Securities and Exchange Commission (SEC) issued a warning to FTX, stating that it reserves the right to challenge the legality of paying back claims or otherwise attempting to profit from its stash of "crypto asset securities."