FTX Secures Global Settlement for Efficient Bankruptcy and Liquidation Resolution

The tumultuous aftermath of FTX’s collapse takes a pivotal turn as FTX Trading Ltd. and FTX Digital Markets Ltd. announce a groundbreaking global settlement.

This landmark agreement seeks to harmonize the legal and financial issues stemming from the simultaneous bankruptcy and liquidation proceedings in the U.S. and the Bahamas.

At the core of this is the aftermath of the collapse of FTX, the cryptocurrency exchange founded by Sam Bankman-Fried. Known for its liquidity issues and allegations of fund mismanagement, FTX crumbled in November 2022, with Bankman-Fried recently found guilty on multiple counts, including wire fraud, by U.S. prosecutors.

Novel Resolutions in Global Settlement

The global settlement, pending approval by the U.S. Bankruptcy Court of Delaware and the Supreme Court of the Bahamas, aims for the following novel resolution:

• Unified Creditor Payouts: Coordination of asset pooling, timing, and distribution amounts to ensure equitable payouts for FTX customers in both jurisdictions.

• Customer Claim Options: FTX users, excluding insiders and certain clients, can elect to process claims in either the U.S. bankruptcy court or the Bahamas liquidation, fostering flexibility.

• Consistent Valuation Approach: Reconciliation of approaches to valuing digital asset claims, minimizing discrepancies in treatment.

• Stable Valuation of Claims: Non-NFT crypto and fiat claims valued in U.S. dollars as of the petition date, mitigating the impact of post-bankruptcy price fluctuations.

• FTT Token Interests: Classification of FTT token interests as equity, ineligible for payouts in either jurisdiction.

• Coordinated Preference Policy: Development of a unified policy for reconciling transactions flagged for clawback actions in both proceedings.

• Unified KYC Procedures: Implementation of consistent know-your-customer procedures for customer identity verification.

Defined Roles and FTX’s Liquidation

The settlement defines roles, with FTX Digital Markets leading asset monetization in the Bahamas and pursuing specific litigation. FTX Trading Ltd. will spearhead other recovery activities, reflecting a collaborative and cooperative approach.

FTX’s liquidation marks a vital move to unravel legal and financial intricacies after its collapse in November 2022. The settlement, offering a potential coordinated approach to fund recovery for creditors, marks a tentative but hopeful progression.

However, possible revisions before final approval and cautionary notes for FTX account holders underscore the ongoing uncertainties. John. J. Ray III, CEO and CRO of FTX Debtors hails the Global Settlement Agreement as a critical milestone, emphasizing its alignment with customer interests and acknowledging the pivotal role of Joint Official Liquidators and The Bahamas in the global recovery effort.