Collapsed cryptocurrency exchange FTX has been looking behind the couch for change and has, perhaps miraculously, found the funds to pay its creditors. But will they accept the deal? Is this fair?
Once a towering giant in the cryptocurrency world, FTX has fallen from its lofty heights to the dismal depths of bankruptcy. This isn't just your company's daily downfall; It's a stunning financial facelift that has left creditors demanding billions. Grab your popcorn, because this is cryptocurrency chaos at its wildest.
Fall from crypto grace
FTX, previously known for its blockchain ambitions, was seemingly on top of the digital world. With the value soaring into the billions, FTX wasn't just playing the cryptocurrency game; They were willing to redefine it. But unfortunately, in late 2022, the empire built on blockchain dreams and digital audacity began to crumble in spectacular fashion. Accusations of misuse of client funds and risky financial practices have turned cryptocurrency leader Sam Bankman-Fried's playground into a fraught pit of regulatory scrutiny and public scandal. Read all about it here
Billions in the balance
As part of the recover-all-recovery plan, the government — the Internal Revenue Service and the Commodity and Futures Trading Commission to name two agencies — agreed to suspend high-value claims against FTX until creditors are paid. However, the IRS will receive a $200 million advance before anyone else gets a slice. There is a surprise.
And so here we are. After the dust settled (or rather, the coins stopped clinking), FTX found itself staring at debts owed to clients and non-government creditors About 11 billion dollars. Yes, that's a billion with a B, and yes, those creditors are as happy about it as a cat in a bathtub.
However…it turns out that once all of its assets are sold, the company may have enough $16.3 billion in cash For distribution, according to documents filed in federal court in Wilmington, Delaware, where the FTX case is being handled.
Creditors' dilemma
Welcome to the Twitter account of the official Unsecured Creditors Committee (UCC) appointed at @FTX_Official Bankruptcies. You can learn more about the UCC in the topic below or on our official website (https://t.co/5o2kaNR3z3).
— Official Committee of Unsecured Creditors of FTX (@FTX_Committee) February 6, 2023
Among the abandoned parties is a wild mix of hedge funds, venture capitalists, and Joe Schmoz — all united by their shared misfortune of trusting FTX with their digital dollars. Now, they stand in a long line, hoping to salvage what they can from the flames of bankruptcy.
But, there's a catch… Depending on the type of claim the creditor holds, some can recover up to 142 percent of what they are owed. Although 118 percent seems more likely one way or another. But although all debts will be paid in full, there will be nothing left for shareholders.
Rejection, resentment, and repercussions
To make matters worse, some creditors scoff at the idea of accepting payments. In January, a creditor bloc began forming, which now includes more than 1,600 members.
This bloc intends to vote in June on whether to accept 118% of its lost funds. “The recovery percentages are taken from a false baseline. It’s a false narrative,” Arush Sehgal, one of the bloc’s leaders, said in an interview with Wired. “It’s an insult to creditors,” he said.
But what is the issue? Why is it an insult?
Sehgal and others don't like the way their claims were evaluated. Many clients held cryptocurrencies on FTX. But because bankruptcy proceedings are entirely dollar-based, they believe that the dollar value of their property is incorrect and low. There's a lawsuit going on, and they're not happy with the camp. You can download the deposit here.
FTX's creditors will receive more than 100% of their money, however @Louis Origny (Co-founder of @ftxcreditor_com) & I discuss why this statement is deceptive and explain the pros/cons of the new FTX plan. Lots of customers are spoiled (feat. @arush). pic.twitter.com/cvOekwUpQL
– Tiffany Fong (@TiffanyFong_) May 10, 2024
Titanic problems
What's left for FTX now? Well, that's like rearranging the deck chairs on the Titanic. As they navigate bankruptcy, their every move is scrutinized by frustrated investors and a cynical public. As a company, there is no doubt that they have been accomplished. Their reputation is gone. But, there is the small matter of making sure everyone gets what they deserve…the question is, who deserves what and who determines the value?
As we watch the chaos continue, we'd do well to remember that all of this is relatively new and anything that happens could set a precedent in future legal hearings. Interesting times. However, one thing remains as clear as ever: buyer beware!
For more non-humorous finance information and finance-related news, follow our trending section.
This article was written by Lewis Parkes at www.financemagnates.com.