FTX Modifies Payout Plans, Leaving Crypto Holders with Only 10-25% Recovery
FTX, the now-collapsed cryptocurrency exchange, has made last-minute adjustments to its payout strategy, setting aside a mere 10-25% of the recovered assets for its crypto holders.
FTX is transferring 18% of DOJ forfeiture funds up to $230m to FTX equity holders (Plan supplement)
FTX crypto holders are getting 10% to 25% of their crypto back pic.twitter.com/3f6BePpoNU
— Sunil (FTX Creditor Champion) (@sunil_trades) September 28, 2024
This sudden shift has blindsided many creditors, who were previously unaware of any changes.
What adds to the frustration is the fact that these revisions were finalised only after the creditors had already voted on the liquidation plan.
The revelation came 30 days past the voting deadline, sparking concerns over transparency and fairness in the process.
Shareholders Get $230 Million Allocation While Crypto Holders Suffer
Adding fuel to the fire, FTX has allocated a significant portion of its funds — $230 million from government forfeiture actions — exclusively for the benefit of preferred shareholders.
FTX to set aside up to $230 million for shareholders, not creditors, from gov't forfeiture proceedshttps://t.co/Z5K2Jnowsb pic.twitter.com/uJyoOuc43D
— Sunil (FTX Creditor Champion) (@sunil_trades) September 29, 2024
This money stems from the proceeds of assets seized by the U.S. Department of Justice (DOJ).
According to Sunil Kavuri, an FTX creditor-activist, “18% of DOJ forfeiture funds” are being transferred to shareholders.
This decision has sparked outrage among creditors, as shareholders typically receive compensation only after creditors are repaid in a Chapter 11 bankruptcy.
Yet, in this case, it seems shareholders are being prioritised, while those who lost their crypto investments are left with much smaller recoveries.
How Did the Revised Agreement Slip Through?
The revised payout plan took many by surprise, as the details surfaced well after the liquidation plan had been approved by the creditors.
Traditionally, creditors are prioritised in bankruptcy proceedings, but the new agreement has shifted the focus toward minimising litigation costs.
As noted in the court filing, both debtors and preferred shareholders “each have an interest in avoiding the cost, expense and delay that would be associated with litigation in connection with the Plan and the Forfeiture Proceeds.”
This sentiment has not sat well with creditors, many of whom feel blindsided.
Kavuri explained in an X chat that "extra money is being transferred to shareholders," raising alarm among those who stand to lose a significant portion of their investments.
Furthermore, reimbursements to creditors are being calculated based on asset prices at the time of FTX’s bankruptcy filing, which was when crypto prices were significantly lower than they are today.
Bitcoin Prices Then vs. Now: Why Are Creditors Furious?
The timing of the reimbursement calculations has been a major sticking point for creditors.
For example, when the bankruptcy petition was filed, Bitcoin was valued at approximately $16,000.
Today, it trades at around $64,562, a steep increase that has left many feeling shortchanged.
Given the sharp rise in cryptocurrency prices, this discrepancy has led to heightened frustration.
One creditor took to social media, saying,
“It’s disgusting they sneak this into the plan so late, after the vote.”
It’s disgusting they sneak this into the plan so late, after the vote.
— Historian on the FTX Scam (@historian_ftx) September 28, 2024
Sunil Kavuri echoed these concerns, pointing out that crypto holders are being repaid based on past, much lower prices, which ultimately diminishes the value of their reimbursements.
The vast difference in Bitcoin’s price from then to now has further fueled the outrage, as many creditors feel their potential recoveries are being severely devalued by this approach.
FTX Crypto Holders Voice Outrage: “We Have Been Scammed Twice!”
FTX crypto holders are not holding back in expressing their anger.
Many have taken to social platforms to denounce the changes, accusing the company of a second betrayal.
Kavuri, who has been vocal throughout the bankruptcy proceedings, shared that some creditors are experiencing severe mental distress, even panic attacks, as they come to grips with the loss of their life savings.
One FTX customer angrily commented, “Disgraceful, we have been scammed twice!” — a sentiment that echoes across multiple platforms.
Disgraceful, we have been scammed twice!
— $🎰🆙 ₿LOCK HEAD (💙,💛) (@slapmylovespuds) September 28, 2024
The frustration has only intensified with the realisation that the payout scheme benefits shareholders significantly more than the average crypto holder.
FTX's new “Preferred Shareholder Remission Fund,” which is capped at $230 million, seems to be aimed at cushioning the losses of those who held equity in the company before its collapse.
Meanwhile, crypto holders are expected to recover just 10-25% of their lost assets, leaving many feeling abandoned.
In a twist that has baffled many in the crypto world, FTX’s native token (FTT) has experienced a dramatic price surge.
The token has skyrocketed over 83% yesterday, with its trading volume soaring by an astonishing 3734%.
The $FTT token from bankrupt Crypto exchange @FTX_Official has oddly jumped over 83% in the last 24 hours.
This is despite no longer having any use.
This is ahead of FTX upcoming payout rumours. pic.twitter.com/rPWHyScnsu
— Crypto Briefing (@Crypto_Briefing) September 29, 2024
This sudden spike is particularly surprising given that FTT’s value plummeted by over 90% after FTX’s fraudulent activities were exposed, leading to its eventual collapse in 2022.
Despite this recent surge, FTT remains a controversial asset, as it has no intrinsic value and is widely seen as a remnant of FTX’s failed empire.
Currently, FTT is trading at $2.17, marking it as one of the market's biggest gainers.
However, the spike has raised eyebrows, with some viewing it as a volatile and risky investment given the token’s association with FTX’s legal troubles and fraudulent past.
The surge stands in stark contrast to the suffering of the crypto holders, who continue to grapple with financial losses while watching FTT experience unexpected gains.
Legal Ramifications: The $12.7 Billion Judgment and Sam Bankman-Fried’s Sentence
FTX’s downfall has far-reaching consequences beyond the immediate losses of its crypto holders.
In August, FTX and its affiliate, Alameda Research, were ordered to pay a staggering $12.7 billion to victims of the fraud.
FTX was ordered to pay $12.7 billion back to its customers this week
With one small caveat pic.twitter.com/DZKgo2eoI6
— Morning Brew ☕️ (@MorningBrew) August 9, 2024
The company had been using customer funds for personal investments and political contributions, actions that ultimately led to its financial ruin.
The fallout from these revelations has been severe, not only for the firm but also for its founder, Sam Bankman-Fried.
Bankman-Fried, once a crypto wunderkind, was sentenced to 25 years in prison for his role in the $11 billion fraud that destroyed FTX.
The judgment against him is one of the largest in the history of cryptocurrency, and the ripple effects are still being felt by those who trusted him and his platform with their investments.
Ross Ulbricht received two life sentences plus 40 years without parole for creating the Silk Road website, despite not harming anyone or stealing anything.
Sam Bankman-Fried (SBF) got 25 years for stealing billions.
Carol Ellison received 24 months for helping steal billions. pic.twitter.com/n3kCoYtiGS
— Alessandro Palombo (@0x_ale) September 25, 2024
