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This agreement is expected to aid in settling FTX’s Chapter 11 bankruptcy and alleviating the financial consequences of its collapse.
On August 7, 2024, US District Judge Peter Castel approved a $12.7 billion settlement involving the defunct cryptocurrency exchange FTX, its affiliate Alameda Research, and the Commodity Futures Trading Commission (CFTC).
This ruling brings to a close a legal dispute that started in December 2022.
Settlement Details
The settlement, finalized on July 12, 2024, is significant both for its magnitude and for the absence of a civil monetary penalty. Rather than imposing a fine, the entire $12.7 billion will be used to repay FTX’s creditors. This comprises $8.7 billion set aside for investors deceived by FTX’s founder, Sam Bankman-Fried, and another $4 billion to be surrendered by FTX and Alameda.
The settlement also enforces stringent restrictions on both companies. They are permanently prohibited from participating in deceptive practices involving commodity trading, digital assets, or serving as intermediaries. These measures are intended to prevent any future misconduct in the digital asset sector.
Effects on Bankruptcy Proceedings
This settlement represents a pivotal development for FTX, which is currently managed by bankruptcy expert John Ray III. The CFTC has become a major creditor in the bankruptcy process, underscoring its important position. The proposed reorganization plan indicates that 98% of creditors with claims under $50,000 are anticipated to receive a 118% return, based on asset values from November 2022, when FTX first declared bankruptcy.
Creditors are currently discussing their preferred payment method. Some are leaning towards receiving their payouts in cryptocurrency, which has risen by 150% since the bankruptcy. They have until August 16 to decide if they want their payments in fiat currency or cryptocurrency. The final decision will be made on October 7, taking into account the changing dynamics of the crypto market.
Conclusion of the Legal Battle
The approval of this settlement brings to a close a 20-month legal dispute initiated by the CFTC’s lawsuit. The CFTC had accused FTX and Alameda of fraudulent practices and misleading the public about FTX’s credibility as a digital asset platform. This agreement is expected to aid in settling FTX’s Chapter 11 bankruptcy and alleviating the financial consequences of its collapse.
Sam Bankman-Fried, the founder of FTX and Alameda, received a 25-year prison sentence in March after being found guilty of fraud and conspiracy. He was also ordered to surrender $11 billion. The announcement of the settlement has been well-received in the crypto community, as it provides essential clarity and closure regarding the aftermath of FTX’s downfall.
FTX, which was the second-largest cryptocurrency exchange globally, fell apart in November 2022 amid allegations that it was using client funds to support its investment arm, Alameda. As rumors spread, investors withdrew their capital, leading to FTX’s bankruptcy. This collapse also triggered a widespread withdrawal of investment from the volatile crypto sector and led to several other business failures.
