©Reuters. FILE PHOTO: An FTX logo is seen through broken glass in this illustration taken December 13, 2022 REUTERS/Dado Ruvic/Illustration/File Photo
By Dietrich Knauth
NEW YORK (Reuters) – Cryptocurrency exchange FTX said it plans to trade U.S. government bankruptcy claims for up to $3 billion to $5 billion, leaving no money for shareholders and contradicting claims that it was “reckless and false” by founder Sam Bankman-Fried that the collapse caused no damage.
FTX revealed these estimates in court documents Wednesday in response to founder Sam Bankman-Fried’s claims that he should receive a light prison sentence because FTX will be able to repay its customers “in full.” Bankman-Fried was convicted in November of stealing $8 billion from FTX clients.
FTX’s current CEO, John Ray, said in Delaware bankruptcy court that Bankman-Fried had distorted the company’s recent statements about its ability to repay customers in bankruptcy to claim that there was “zero” harm to FTX’s customers, financiers and investors.
“All of these claims are reckless and false,” Ray wrote.
“Even the best imaginable outcome in the Chapter 11 proceeding will not lead to a true and complete economic recovery by all creditors and lay equity investors as if the fraud had never occurred,” he said.
FTX estimates it will have $13.7 billion in assets to pay $31.4 billion in legitimate claims, including $9.2 billion in customer claims and $17 billion in claims made by the Commodity Futures Trading Commission and the ‘Internal Revenue Service of the United States.
FTX said in January that it plans to pay customers “in full,” but that statement comes with an important caveat: It will evaluate customer requests based on the price of cryptocurrencies in November 2022, and customers will not receive any benefit from a significant increase of prices. cryptocurrency prices since that date. Many FTX customers are “extremely unhappy” with FTX’s proposed refund, Ray wrote.
FTX’s proposed bankruptcy repayment still faces significant hurdles, including ongoing negotiations over the $17 billion compensation claims made by the U.S. government.
FTX is working toward a settlement that would allow FTX to repay its customers to the government and reduce the government’s total claims to between $3 billion and $5 billion. The US government has agreed to prioritize refunding customers in recent cryptocurrency-related bankruptcies, including the BlockFi and Genesis Global cases.
If the government does not agree to prioritize FTX customers, its demands could significantly dilute the amount available to reimburse customers, FTX said.
One group that is sure to be hurt by Bankman-Fried’s fraud are FTX investors and shareholders, who have little hope of recovering money from the company’s bankruptcy, according to FTX. FTX will not have enough money to pay shareholders, who are last in line for repayment after the company’s customers, its lenders and the U.S. government.