Cryptocurrency exchange FTX, now bankrupt, and the US Commodity Futures Trading Commission (CFTC) have reached a $12.7 billion settlement, pending a final judgment from a Delaware court.
On July 16, 2024, FTX and CFTC officially announced the compensation agreement after months of negotiations. Previously, in 2022, CFTC filed a lawsuit against FTX, former CEO Sam Bankman-Fried and Alameda Research investment fund alleging fraud, causing $8 billion in losses to customers.
The agreement is a key part of FTX’s Chapter 11 restructuring plan, which resolves ongoing legal disputes, avoids the expense and time of further litigation, and significantly reduces the risk of a reduction in assets available for distribution to creditors, according to a filing with the U.S. Bankruptcy Court for the District of Delaware on July 12.
The CFTC initially sought $52.2 billion in damages. However, under the new agreement, the CFTC will not receive any money as long as FTX complies with its restructuring plan. Instead, FTX will pay up to $12.7 billion to creditors, depending on the amount available.
“In this special settlement, the CFTC has waived its debt collection from FTX to supplement its recovery from cryptocurrency customers and lenders beyond what is customary in Chapter 11 bankruptcy cases,” said Andy Dietderich, an attorney representing FTX.
The deal includes $8.7 billion in compensatory damages and $4 billion in punitive damages. The $4 billion in punitive damages will be “paid after all other creditors have been satisfied,” according to the filing.
FTX said in court filings that the CFTC is “the single most significant creditor” in its Chapter 11 bankruptcy case. “Given the conduct, guilty pleas, and convictions of FTX insiders, FTX faces significant potential liability to the CFTC.”
A hearing on the settlement is scheduled for August 6.
FTX filed for bankruptcy in late 2022. In May, FTX announced a restructuring plan that expected to pay 98% of its creditors at least 118% of their approved debts. Under the plan, creditors with approved debts under $50,000 would be eligible for the 118% settlement once approved by the court.
However, some parties, including representatives of FTX's largest group of creditors, have opposed the plan, arguing that FTX should be paid in cryptocurrency instead of the USD value at the time of FTX's bankruptcy filing. The vote on the plan will take place on August 16.
Sam Bankman-Fried, former CEO of FTX, was convicted in November 2023 on seven counts, including wire fraud and conspiracy to commit wire fraud, and sentenced to nearly 25 years in prison. The U.S. Securities and Exchange Commission (SEC) also charged Bankman-Fried with fraud.
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