In a surprising development regarding the FTX bankruptcy, the collapsed cryptocurrency exchange has decided to set aside up to $230 million from government forfeiture proceedings for preferred shareholders. This decision, revealed in a recent filing, has caught creditors off guard, as they typically receive reimbursement before shareholders in bankruptcy proceedings.
According to Sunil Kavuri, a representative for the largest FTX creditor group, ordinary creditors were not consulted about this provision. "FTX customers following me have commented how they feel scammed and robbed again by the estate," he stated.
The agreement, executed on August 28 but disclosed only on September 27, indicates that the FTX debtors' estate, managed by Sullivan and Cromwell lawyers, will allocate 18% of all proceeds from government forfeiture actions to a fund exclusively benefiting certain shareholders. This fund could total up to $230 million.
The FTX estate's previous filings estimated that the total proceeds from forfeiture actions could reach approximately $1.19 billion. This includes about $626 million seized from the Emergent entity involved in Robinhood share purchases, $379 million in fiat and digital assets from cryptocurrency exchanges, and cash assets seized from FTX DM registered accounts.
Despite the bankruptcy plan receiving overwhelming preliminary support from creditors, which promised 98% of creditors at least 118% of their claim value in cash, concerns remain. Kavuri argues that many creditors will ultimately only recover about 10% to 25% of their original assets due to the valuation of cryptocurrencies at the time of bankruptcy.
For instance, while Bitcoin prices were around $16,000 at the time of FTX's collapse, it has since surged to nearly $66,000, affecting the reimbursement process. Under the current plan, creditors who lost 1 BTC may only receive $16,000, representing a mere fraction of its current value.
The confirmation hearing for the FTX reorganization plan is scheduled for 10:00 am ET on October 7. Judge John Dorsey will assess whether to approve the plan, while the FTX estate must report the full results of the creditor vote by September 30, providing transparency ahead of this critical hearing.
