FTX and Alameda Reach $12.7 Billion Settlement, Ending Legal Battle with CFTC

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Major Settlement Greenlit! On August 7, U.S. District Judge Peter Castel granted final approval for a substantial $12.7 billion settlement between FTX, its trading affiliate Alameda Research, and the Commodity Futures Trading Commission (CFTC). This decision concludes a 20-month-long legal battle stemming from allegations of fraud and misrepresentation by FTX and Alameda. Interestingly, the settlement may expedite Chapter 11 cases.

Financial Breakdown

FTX and Alameda settled with the CFTC on July 12, but it was pending court approval. As part of the settlement on Aug 7, Judge Castel approved the entire $12.7 billion will be allocated to repaying FTX creditors. The agreement specifies that $8.7 billion will be returned to investors defrauded by FTX founder Sam Bankman-Fried, while an additional $4 billion will be forfeited. Notably, the CFTC did not seek a civil monetary penalty, meaning all funds will directly benefit creditors. No civil penalty was imposed.

Permanent Bans Imposed

In addition to the financial terms, the settlement imposes permanent bans on both FTX and Alameda Research. These bans include prohibitions against cheating or defrauding commodity customers and engaging in digital asset commodities transactions. They are also barred from buying or selling digital asset commodities on behalf of third parties.

Reorganization and Creditor Preferences

Having said that, the reorganization plan for FTX is expected to yield a 118% return for 98% of creditors with claims under $50,000, based on the asset values at the time of FTX’s bankruptcy filing in November 2022.

However, creditors are currently debating whether to receive their payouts in cash or cryptocurrency, especially after the 150% rise in the crypto market since FTX’s bankruptcy.

This decision will be finalized following a voting period ending on August 16, with U.S. Bankruptcy Court Judge John Dorsey set to make a final determination on October 7.

Ongoing Developments

The lawsuit’s resolution marks a significant milestone in FTX’s bankruptcy proceedings, but the decision on the form of payouts could influence the final impact on creditors. The crypto market’s recovery since FTX’s bankruptcy adds a layer of complexity to these proceedings as creditors weigh their options in light of the recent market upswing.