A U.S. bankruptcy judge has approved the reorganization plan of collapsed cryptocurrency exchange FTX, marking a major milestone two years after it collapsed amid allegations of fraud and abuse.
Delaware District U.S. Bankruptcy Court Judge John Dorsey approved the plan at a hearing today, setting the stage for distributing funds to creditors.
Under the approved plan, 98% of creditors will receive at least 118% of their claims in cash. 94% of creditors in the “dotcom customer claims” class, representing approximately $6.83 billion in claims, voted in favor of the reorganization plan.
Despite the approval, the plan has faced criticism from some creditor representatives. Sunil Kavuri, representing the largest FTX creditor group, argued that the estate should reimburse creditors in cryptocurrencies rather than dollar value when FTX files for bankruptcy in 2022. Attorney David Adler, who represents some creditors, warned that cash payments could result in significant tax liabilities for creditors who originally held cryptocurrency assets.
During the hearing, Adler asked Steven P. Coverick, a managing director at Alvarez & Marsal North America, LLC, about the possibility of such distributions. Coverick stated that the topic was discussed thoroughly, but that the plan ultimately excluded such distributions due to the lack of sufficient cryptocurrency assets.
“Borrowers do not have the cryptocurrency required to make the equivalent distributions and, in fact, never had cryptocurrency in the proportions that customers believed were in their accounts,” Coverick said.
Judge Dorsey echoed this sentiment, rejecting the idea of a uniform distribution. He also confirmed that the value of FTT, FTX’s native token, is effectively zero. “I have no evidence that the value of FTT tokens today will be anything other than zero,” Dorsey said, noting that the token’s value is deeply tied to FTX’s operations, which will not be revived.
The idea of an “FTX 2.0” reboot was also considered but ultimately rejected. FTX CEO John J. Ray III had expressed interest in exploring a revival of the exchange in June 2022, but FTX attorney Andrew Dietderich later confirmed at a January hearing that no investors were willing to commit the necessary capital.
*This is not investment advice.
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