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Bankrupt FTX plans to pay creditors $11bn, but investors feel insulted by the offer. Here’s why

FTX, the bankrupt cryptocurrency exchange, announced plans to repay all its creditors, totaling $11 billion, thanks to a surge in bitcoin prices. John Ray III, the new CEO, took over after the previous leader’s disgrace.

FTX unveiled its bankruptcy plan on Tuesday, outlining a route to complete repayment, with interest, for nearly all creditors. FTX claims this feat is achievable through the liquidation of multi-billion-dollar investments made by its venture capital arm, FTX Ventures, and its affiliate, Alameda Research.

How FTX plans to repay its users
The proposed plan also includes an agreement with US government entities, such as the Internal Revenue Service (IRS) and the Commodities and Futures Trading Commission (CFTC), to halt substantial claims against FTX until creditors are satisfied temporarily. The IRS will receive a $200 million upfront payment as part of the settlement.

Ray is optimistic that FTX might have over $16 billion after selling off assets, which would be more than its debts. He also expressed that the bankruptcy team is satisfied with proposing a plan to return 100 percent of the owed amounts and interest to creditors.

The company’s debts are in dollars, while its assets include speculative digital commodities and stakes in startups. When FTX collapsed in 2022, bitcoin was around $20,000; now, it’s more than tripled.

From a legal standpoint, creditors, mostly former platform users, will receive their lost funds. However, they might regret selling their cryptocurrencies at low prices and missing out on recent gains.

‘A thief who took his loot to Las Vegas…’
During his trial, Bankman-Fried argued that the expected repayment should lessen his sentence. However, Judge Lewis Kaplan dismissed it, calling Bankman-Fried’s appeal “misleading, logically flawed, and speculative.”

He said, “A thief who takes his loot to Las Vegas and successfully bets the stolen money isn’t entitled to a reduction of his sentence.”

FTX’s stake in AI startup Anthropic also aided its recovery. The exchange sold this stake for $824 million. Meanwhile, the company’s former CEO, Sam Bankman-Fried, is serving a 25-year jail term for his part in the company’s fraudulent collapse.

Creditors of the bankrupt crypto exchange FTX aren’t happy with the plan offered to recover their lost money. Even though the plan promises that creditors will receive 118 percent of the money they have invested, which they say is not as good as it sounds, this gives them a return of 18 percent. They argue that the calculation is misleading and unfair.

Why former users are not happy with the settlement offer
FTX creditors—about 1,600 of them—formed a group to vote on the plan. Leaders Sunil Kavuri and Arush Sehgal will encourage others to reject it. They claim the plan doesn’t accurately assess the value of their crypto assets, which have grown since FTX went bust.

The proposed plan promises full repayment plus interest, thanks to the sale of investments by FTX’s related companies. US government agencies agreed to hold off on their claims until creditors are paid, with the IRS getting an upfront payment.

However, the leading creditors, who had invested the most in the platform, don’t trust the plan. They fear it undervalues their claims and leaves them vulnerable. The creditors also believe that the plan’s wording allows the company to back down and refuse to honor its obligation by citing banal reasons.

They also worry about losing their ability to pursue other legal actions against parties like law firms linked to FTX, which covered their shenanigans.

FTX creditors feel the proposed plan isn’t fair or trustworthy. They believe it could leave them shortchanged and without legal recourse in the future.

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