A US court has mandated that the bankrupt cryptocurrency exchange FTX pay $12.7 billion in relief to its customers, according to an announcement from the Commodity Futures Trading Commission (CFTC). This order is part of a settlement between FTX and the CFTC, as the exchange works through bankruptcy to compensate users who lost their deposits during its collapse in late 2022.
The settlement involves FTX, the CFTC, and the affected customers. CFTC Chairman Rostin Behnam accused FTX of creating a false sense of security for its users, only to misappropriate their deposits for its own risky investments. The settlement aims to ensure that customers receive full repayment based on the value of their accounts at the time FTX declared bankruptcy.
The court order was issued on Thursday, marking a critical development in FTX’s bankruptcy proceedings. FTX is currently gathering votes on its bankruptcy proposal, with final approval anticipated on October 7.
The settlement requires FTX to allocate $8.7 billion in restitution and $4 billion in disgorgement, which will be used to compensate the victims. The CFTC has agreed to defer its claim until after all customers have been fully repaid, including accrued interest. This agreement eliminates a potential legal hurdle, ensuring that the government’s lawsuit will not diminish the funds available to compensate FTX’s customers.
FTX, once a major player in the cryptocurrency market, collapsed in late 2022 after revelations that it had misused customer funds to make speculative investments. Sam Bankman-Fried, the founder of FTX, was sentenced to 25 years in prison in March for embezzling $8 billion from customers. Since then, FTX has been engaged in bankruptcy proceedings, settling with regulators, selling off assets, and attempting to repay customers. However, the exchange faces some opposition from customers who are dissatisfied with the repayment plan, which is based on much lower cryptocurrency prices from November 2022.
The court’s order and the settlement with the CFTC mark a significant step toward compensating FTX’s customers and resolving the bankruptcy. While the repayment plan offers a path to recovery, the process highlights the challenges of unwinding one of the largest failures in the cryptocurrency industry, with legal complexities still to be navigated as the bankruptcy progresses.
