Will FTX creditors agree to the losses? | Credit: Shutterstock
Key Takeaways
- The FTX rescue plan values creditors’ claims based on November 2022 crypto prices – significantly lower than current market values.
- FTX’s bankruptcy contributed to a prolonged bearish trend in 2023.
- Specific creditor classes will have the chance to vote on the revised plan.
For the out-of-pocket creditors of FTX, the ongoing bankruptcy proceedings raise several crucial questions. This is especially true considering the nature of repayments in the eventual settlement plan. A key query is whether compensation to FTX’s victims will be made in cash or in cryptocurrency.
On December 16, FTX debtors presented a revised Chapter 11 restructuring scheme that could result in substantial financial losses for the defunct exchange’s creditors.
Creditors Locked in at Pre-Crash Prices
The ‘new’ plan suggests setting the value of creditors’ claims based on cryptocurrency prices as of November 11, 2022, when FTX filed for bankruptcy.
Prior to FTX’s downfall, the cryptocurrency market experienced a significant downturn. The filing bankruptcy filing exacerbated the market’s decline, leading to a prolonged bearish trend well into 2023.
As a result, cryptocurrency values on November 11 were markedly lower that they are now. Therefore, creditors could be faced with considerable losses.
For instance, Bitcoin (BTC) was valued at just over $17,500 on November 11, 2022. Since then, its price has more than doubled, reaching $40,965 at the time of writing (December 18 2023). This suggests that FTX creditors could lose $24,000 for each Bitcoin. Similarly, Ethereum’s (ETH) price increased from around $1,284 to $2,214, resulting in a potential loss of nearly $1,000 per ETH for the creditors.
FTX creditor Sunil Kavuri pointed out that the new reorganization plan seems to overlook FTX’s Terms of Service, which state that digital assets belong to the users, not FTX Trading. Before finalization, specific creditor classes will have the chance to vote on this plan.
$53k an Hour Spent as Crypto Exchange Faces $350 Million Tab
During the three-month period leading up to October 31, FTX reported significant expenditure on bankruptcy legal and advisory services, amounting to around $53,000 per hour. Recent compensation filings reveal that, from August 1 to October 31, bankruptcy attorneys billed at least $118.1 million.
This equates to daily expenses of $1.3 million or approximately $53,300 hourly over the 92-day span. Notably, the highest invoice was from Alvarez and Marshall, a management consulting firm, which billed $35.8 million for their services during this three-month period.
Law firm Sullivan & Cromwell ranked second in terms of fees during the FTX bankruptcy proceedings. They invoiced $31.8 million for their legal services, with hourly rates averaging around $1,230.
During the same period, AlixPartners, a consulting firm, charged $13.3 million for professional services primarily related to forensic investigations. Another law firm, Quinn Emanuel Urquhart & Sullivan, invoiced $10.4 million. Additionally, various smaller advisory firms collectively billed over $26.8 million.
A post on December 17 by an anonymous FTX creditor on X indicated that the total legal fees paid since the start of FTX’s bankruptcy case amounted to approximately $350 million.
From Crypto Kingpin to Bankrupt
FTX, once a towering figure in the cryptocurrency exchange world, experienced a dramatic downfall with its Chapter 11 bankruptcy filing in November 2022 .
This development, precipitated by a severe liquidity crunch, marked a drastic shift in the crypto landscape. The company’s CEO, Sam Bankman-Fried, resigned amid the chaos, paving the way for new leadership to steer the bankruptcy proceedings.
The aftermath saw FTX become the focus of various legal and regulatory investigations over alleged financial misdeeds and mishandling of customer funds. Amid efforts to stabilize its operations, FTX liquidated assets and formulated reorganization plans to address creditor claims, albeit at reduced valuations.
This saga continues to reverberate through the cryptocurrency market, influencing price movements and drawing heightened scrutiny from regulators worldwide.
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