FTX Seeks Court Approval for Cash Repayment Plan, Faces Customer Pushback

Bankrupt cryptocurrency exchange FTX is gearing up to seek court approval for its proposed liquidation plan, which aims to repay customers in cash. The plan, however, has met with significant opposition from some creditors who argue they are being shortchanged due to the valuation method used.

FTX, which filed for bankruptcy in November 2022, claims to have recovered up to $16 billion in assets, including approximately $12 billion in cash. The company asserts that this is sufficient to repay all customer claims in full. However, the crux of the dispute lies in how these claims are being valued.

The exchange proposes to base repayments on cryptocurrency prices from November 2022, when it filed for bankruptcy. This approach has been previously approved by U.S. Bankruptcy Judge John Dorsey. However, given the significant increase in cryptocurrency values since then, many customers feel aggrieved. For instance, a customer who had one Bitcoin deposited on FTX at the time of bankruptcy would receive about $16,800 in cash, substantially less than Bitcoin’s current market value of approximately $60,000.

Objecting creditors argue that FTX’s communication about a “full recovery” with interest is misleading. Some have filed lawsuits outside of bankruptcy court, challenging FTX’s ownership of customer deposits and demanding repayment based on current cryptocurrency prices.

FTX CEO John Ray, a turnaround specialist who took over after the bankruptcy filing, maintains that returning the original cryptocurrency is not feasible as those funds are no longer available, allegedly misappropriated by former CEO Sam Bankman-Fried, who is now serving a 25-year prison sentence. Ray argues that cash repayment is the only fair method to distribute value among creditors who held various types of cryptocurrency assets.

If approved, FTX claims that 98% of its customers could receive full repayment within 60 days, with a faster option available for those owed less than $50,000. The company plans to seek final approval of its wind-down plan on October 7, with creditors having until August 16 to cast their votes.