FTX’s $4 Billion Settlement With CFTC Prioritizes Creditor Repayments

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Bankrupt crypto exchange FTX has tentatively agreed to settle with the US Commodity Futures Trading Commission (CFTC).

This marks another chapter in the firm’s ongoing bankruptcy process and efforts to repay creditors impacted by its sudden 2022 collapse.

FTX Reach $4 Billion Settlement With CFTC

According to a July 12 court filing, FTX agreed to a $4 billion settlement with the CFTC. This settlement is a considerable reduction from the CFTC’s initial demand of approximately $52.2 billion in restitution, disgorgement, and civil monetary penalties.

Meanwhile, the settlement is still subject to approval by the US Bankruptcy Judge John Dorsey. The case is scheduled for a hearing on August 6, 2024.

Notably, the settlement subordinates the CFTC’s claim, ensuring payment only after satisfying other creditors’ claims and interests. This claim’s recoveries will supplement payments to creditors, particularly those with commodity-related contracts, including FTX US and global customers and Alameda lenders.

“Among other things, the Proposed Settlement—which would only become effective and final upon confirmation of Debtors’ proposed chapter 11 reorganization plan (the ‘Eligible Plan’)—would resolve the District Court Action and the Asserted CFTC Claims on favorable terms for FTX and its creditors without the need for the Debtors to expend significant time and incur additional expenses on litigation,” the filing stated.

The agreement aims to forestall prolonged litigation and facilitate quicker asset distribution to creditors. Importantly, it prevents the CFTC from imposing civil monetary penalties and safeguards the available funds for creditors.

However, Sunil Kavuri, a prominent FTX creditor, criticized the settlement for potentially compromising creditors’ full restitution. He expressed concerns that government fines resulting from FTX’s misrepresentation to the CFTC might precede compensating victims fully at current asset valuations.

“The FTX bankruptcy estate wants to pay government fines – which has resulted because of their lies to the CFTC – by using FTX victim’s crypto and fiat. This is before making FTX victims whole at current prices,” Kavuri said.

This development occurs amidst ongoing opposition to FTX’s proposed repayment plan, which was announced in May. The plan intends to reimburse creditors between $14.5 billion and $16 billion based on November 2022 asset prices. However, several FTX creditors have kicked against it, claiming it underpays them.

Nonetheless, market analysts suggest that FTX’s repayment efforts could stimulate broader crypto market prices, potentially driving them upwards.

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