Users are baffled by the announcement that FTX clients will receive only 10% to 25% of the value of their deposited cryptocurrency. What led to this development?
Sunil Kavuri, a creditor involved in the bankruptcy case, indicated that several changes to the reorganization plan are in the works. A significant point raised concerns the amount of compensation payouts for affected users, leading to growing questions within the community.
Details of the Compensation Plan
Crypto assets held on the FTX platform will be assessed based on their value at the time of bankruptcy filing. Consequently, affected clients may receive between 10% and 25% of the current market value of their cryptocurrencies.
Additionally, FTX shareholders are set to receive up to 18% of funds confiscated by the U.S. Department of Justice, capped at $230 million. This represents an added incentive designed to bolster the interests of preferred shareholders.
However, the compensation terms have generated significant backlash, with many labeling the arrangement a scam. Some users have noted potential conflicts of interest, given that the majority of FTX shareholders are associated with leading law firms representing the debtors, further complicating the compensation process.
Speculation Surrounding Compensation Payment Timing
Efforts are underway to return funds to FTX account holders affected by the exchange’s collapse. Although earlier reports suggested payments could commence as early as September 30, these claims have been disputed. According to recent bankruptcy case documentation, the court is still reviewing the proposed compensation plan.
The next court hearing regarding the approval of the restructuring plan is slated for October 7. Should the court grant approval, compensation for claims below $50,000 may begin in late 2024, while others could see payouts during the first half of 2025.
FTT Tokens Experience Significant Growth
Investors have reacted positively to the news, sparking optimism that the notorious exchange will soon begin disbursing funds. This sentiment could potentially inject $16 billion back into the market.
On September 29, the FTX token (FTT) soared 113% in a single day, although by day’s end, the price corrected to $2.11.
Where Did Client Funds Disappear?
Once valued at $32 billion, FTX reportedly misused client funds for high-risk investments through its affiliate, Alameda Research. Investigations have revealed that client deposits were utilized to cover significant losses in other ventures and to finance risky investment strategies.
The magnitude of FTX’s financial deficit came to light as clients sought to reclaim their funds. Following the exchange’s bankruptcy, restructuring efforts began, aimed at recovering assets for clients. However, the precise circumstances surrounding the misappropriation of funds remain under investigation, with FTX owing approximately $9 billion to its clients.
Awaiting Justice: Victims and Perpetrators
The collapse of FTX has sent shockwaves through the crypto market, adversely impacting the prices of numerous cryptocurrencies and raising substantial concerns regarding the security of crypto exchanges among both users and regulators. In addition to developing a reimbursement strategy, top executives involved in the scandal are facing justice.
Sam Bankman-Fried has been charged with fraud, money laundering, and various financial crimes related to FTX operations and client fund management. Earlier this year, he was sentenced to 25 years in prison for his role in the massive fraud.
Caroline Ellison, former CEO of Alameda Research, received a two-year prison sentence and is responsible for forfeiting $11 billion due to her involvement in fraud and money laundering activities. Her cooperation with authorities during the investigation may have influenced her sentencing. Acknowledging her guilt, she expressed remorse for the victims affected by the collapse.
In light of Ellison’s sentencing, other involved parties, including FTX co-founder Gary Wang and engineering head Nishad Singh, are now awaiting their court rulings.
