Lawyers for defunct cryptocurrency exchange FTX proposed a plan on Tuesday that would return all invested money to customers within 60 days of the plan’s effective date, including interest of up to 18 percent on the funds.
Despite only a small part of the money being present when massive fraud was discovered at FTX in November 2022, company executives were able to collect more than $16 billion in assets from businesses related to FTX, including Alameda Ventures, a crypto hedge fund, which was also owned by FTX owner Sam Bankman-Fried.
“FTX has achieved this recovery level by monetizing an extraordinarily diverse collection of assets, most of which were proprietary investments held by the Alameda or FTX Ventures businesses, or litigation claims,” the plan announcement, which was jointly signed by the law firms Sullivan & Cromwell, Quinn Emanuel Urquhart & Sullivan and Landis Rath & Cobb, which all represent FTX debtors, read.
Investors who invested $50,000 or less in FTX will receive 118 percent of their initial investment within 60 days, while larger investors will receive their money back plus 9 percent.
About 98 percent of creditors have claims of under $50,000.
FTX estimated that the total owed to creditors was around $11.2 billion, several billion dollars less than its assets.
The assets have been frozen since FTX collapsed 17 months ago, leaving customers in the lurch.
While 18 percent interest may seem like a lot, bitcoin has appreciated more than nearly 400 percent in that time period, going from just over $16,000 in November 2022 to $62,597 at press time.
Some customers have also objected to their money being “dollarized” due to the scrutiny that comes from the IRS and other government institutions and the potential to trigger capital gains taxes.
A big reason people hold cryptocurrency is that they can do so without paying taxes as long as it is not converted to dollars.
Although the company filed for reorganization, the exchange was permanently shut down, and FTX is liquidating assets to distribute them.
The plan, which needs to be approved by the bankruptcy court, rests on several agreements made with the IRS and other agencies to subordinate their claims to a lower priority than returning money to customers.
The IRS claimed $24 billion in unpaid taxes and fines prior to the bankruptcy filings, but it settled for a $200 million cash payment and a $685 million subordinated claim below all creditors and other government entities.
The agency will also subordinate future tax claims.
Other agencies, including the Commodity Futures Trading Commission and the Department of Justice, have also subordinated their claims for fees and administrative expenses until creditors are paid.
The plan also includes a previously approved settlement with BlockFi, FTX’s largest creditor. Under the settlement, BlockFi agreed to accept $250 million upfront and up to $689 million after all other creditors were paid.
Cryptocurrency had been steadily appreciating until 2021, when inflation and rising interest rates led to more people withdrawing their money from cryptocurrencies.
Bitcoin bottomed out at just over $16,000 around the time of FTX’s collapse, which had a ripple effect on other cryptocurrency exchanges.
FTX founder and CEO at the time of the collapse, Mr. Bankman-Fried, was convicted of fraud and conspiracy to launder money. He is serving a 25-year prison sentence on the charges.
He could have faced 100 years in prison, effectively a life sentence.
Mr. Bankman-Fried showed little remorse for his actions and claimed before sentencing that all investors would be repaid.
