Will FTX’s customers be repaid?

In the times after the autumn of his crypto change, Sam Bankman-Fried opened a Google Doc and started to kind. Beneath the title “most likely unhealthy concepts” he listed potential methods, which included popping out as a Republican and arguing that “SBF died for our sins”. Mr Bankman-Fried finally determined in opposition to each, however there may be one fiction he by no means let die. He has at all times claimed FTX was, in actual fact, solvent and will repay the $10.6bn it owed clients.

Mr Bankman-Fried misplaced his empire in November 2022, nevertheless it was not till March twenty eighth that he discovered his destiny: 25 years in jail. FTX’s customers-turned-creditors are nonetheless ready. The chapter is messy, extending to over 100 entities with property attorneys say are “hopelessly” mingled. So it was stunning to probably all people besides Mr Bankman-Fried himself when FTX advised a court docket in January that it ought to have the ability to repay its 36,000 clients in full.

FTX is sweet for the money not as a result of it was at all times solvent, however as a result of directors have clawed again property that its final chief govt frittered away, argues John Ray III, the agency’s present boss. Rising crypto costs have additionally helped. Mr Ray’s crew has positioned $7bn in property, together with luxurious houses and personal jets. They reckon that one other $16.6bn flowed out of the corporate earlier than its collapse—a 3rd of which went to insiders and associates—and a few of which can be clawed again.

Mr Ray’s success in monitoring down FTX’s money has made claims on its property a scorching commodity. Imposters have pumped up their complete worth to $23.6qn (quintillion, that’s). Though authentic claims on FTX’s debt first traded at as little as one-tenth of their face worth, reflecting expectations they’d not be repaid, these certificates have nearly solely recovered their worth. One buyer is attempting to regain $166m of claims in court docket, having offered them for a 3rd of their face worth.

Mr Ray solely has to repay, with out curiosity, the greenback worth of consumers’ crypto accounts on the time FTX filed for Chapter 11 safety on November eleventh 2022. By then, bitcoin tokens had misplaced a fifth of their worth since Mr Bankman-Fried had barred withdrawals three days earlier. And crypto has since been on a tear. The value of solana tokens, FTX’s largest holding, has elevated eleven-fold; bitcoin has greater than tripled in worth. This has led some collectors to sue for cost in tokens, quite than {dollars}. They declare the tokens are their property underneath FTX’s phrases.

But FTX doesn’t have the tokens they search. Mr Ray says there have been solely 105 bitcoins left on the change when he took over, in opposition to buyer entitlements to just about 100,000. In fact, clients appear to have made a fortunate escape. Their reimbursement depends on FTX’s homeowners dropping out on their $12bn declare, the federal authorities forgoing $43.5bn in fines and taxes, and Mr Ray being allowed to promote what stays. None of this may have occurred if FTX actually had been solvent. ■

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