FTX customers could get $9B shortfall claim payout by mid-2024

FTX customers could get B shortfall claim payout by mid-2024

A proposed settlement could see creditors receive a shortfall claim of $8.9 billion for FTX.com and $166 million for FTX US.

Customers of bankrupt crypto exchange FTX and FTX US could see over 90% of assets returned to them by the end of the second quarter of 2024 after a proposed settlement was reached between FTX creditors and debtors.

On Oct. 17, FTX debtors said they reached a “major milestone” in their Chapter 11 case after “extensive discussions” with the unsecured creditors' committee, a committee of non-US customers, and class action plaintiffs regarding customer property disputes.

FTX ebtors filed a notice of the proposed settlement to a Delaware-based United States Bankruptcy Court on Oct. 16 (for information purposes). However, they need to submit an official filing by Dec. 16 seeking the court’s approval.

(1/4) The FTX Debtors have announced another major milestone in their chapter 11 cases.
— FTX (@FTX_Official) October 17, 2023

Part of the amended plan consists of the “Shortfall Claim,” in which FTX debtors estimates that customers of FTX.com and FTX US would collectively receive 90% of assets available for distribution.

The Shortfall Claim is estimated to be approximately $8.9 billion for FTX.com and $166 million for FTX US. If approved by the Bankruptcy Court, FTX expects these funds to be disbursed by the end of the second quarter of 2024.

John. J. Ray III, CEO and chief restructuring officer of the FTX, was pleased with the terms of the settlement:

"Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers.”

The amended plan involves FTX dividing the assets into three pools — assets segregated for the benefit of FTX.com customers, U.S. customers and a general pool of other assets. However, only the first two groups are included in the Shortfall Claim.

The Plan Term Sheet is a compromise between the Committee, the Debtors, the ad hoc customer committee and other representatives on a range of issues that balance the rights of customer and non-customer creditors across the U.S. and foreign debtors.
— Official Committee of Unsecured Creditors of FTX (@FTX_Committee) October 17, 2023

FTX debtors however anticipate that customers of both exchanges will not be paid in full and that FTX.com would likely see a greater percentage of losses.

FTX customer clawbacks

Meanwhile, observers noted a part of the proposed plan sees to it that customers that withdrew over $250,000 from the exchange within nine days of bankruptcy would have their claim reduced by 15% of the amount.

However, claims under $250,000 wouldn't be subject to a reduction, FTX debtors explained:

"Eligible customers that have a preference settlement amount of less than $250,000 during the nine-day period would be able to accept the settlement without any reduction of claim or payment."

However, as part of the amended plan, FTX may exclude from the settlement any insiders, affiliates and customers who may have had knowledge of the commingling and misuse of customer deposits and corporate funds, it said.

Former FTX CEO Sam Bankman-Fried is two weeks into his fraud trial on matters relating to his involvement in FTX’s collapse to bankruptcy last November.

Magazine: Deposit risk: What do crypto exchanges really do with your money?

Lawyers’ picnic: FTX counsel and advisers rake in M in January

accounting

Millions have been invoiced from a host of law firms, investment bankers, consultants and financial advisers in FTX’s bankruptcy case.

The law firms, investment banks and consulting companies working with FTX on its bankruptcy case billed the crypto exchange a combined $34.18 million in January, court documents reveal.

FTX’s chief restructuring officer and new CEO, John J. Ray III, also received a hefty pay package, charging $1,300 an hour to a total of $305,000 in February according to a March 6 filing.

*Fee breakdown of FTX CEO John J. Ray III over the month of February. Source:* *Kroll*

Separate court filings on March 6 show United States law firms Sullivan & Cromwell, Quinn Emmanuel Urquhart & Sullivan and Landis Rath & Cobb invoiced $16.9 million, $1.44 million and $684,000, respectively, for their services and expenses in January.

Lawyers and staff of Sullivan & Cromwell billed a total of 14,569 hours for their work, which equates to over 600 days. Some partners received up to $2,165 per hour, while the firm’s paralegals and legal analysts were being billed out at $425 to $595 per hour.

The highest-priced billables were discovery ($3.5 million), asset disposition ($2.2 million) and general investigation work ($2 million).

*Sullivan & Cromwell’s fee statement as counsel to FTX Trading for the month of January. Source:* *Kroll*

It submitted another hefty $7.5 million bill to FTX for the first 19 days of February.

Ray played a crucial role in keeping Sullivan & Cromwell on board as legal counsel, having filed a court motion on Jan. 17 arguing that the white-shoe law firm had been integral in taking control over the “dumpster fire” that was handed to him.

His filing came in response to an objection to the retention of the law firm on Jan. 14 by U.S. Trustee Andrew Vara, who claimed that Sullivan & Cromwell had failed to sufficiently disclose its connections and prior work for FTX.

FTX special counsel Landis Rath & Cobb spent much of its working hours attending court hearings and litigation procedures. For its efforts, the firm billed the FTX administrators $684,000, including expenses.

Between the three law firms, over 180 lawyers and over 50 non-lawyer staff worked on the case, most of who came from Sullivan & Cromwell.

Forensics consulting firm AlixPartners billed $2.1 million for January. Almost half of the firm’s hours were spent on forensic analysis of decentralized finance products and tokens in FTX’s possession.

Consulting firm Alvarez & Marsal invoiced for $12.5 million for over 17,100 hours it committed to avoidance actions, financial analysis and accounting procedures.

*A breakdown of Alvarez & Marsal’s monthly fee statement by project, hours and fees for the month of January: Source:* *Kroll*

Investment bank Perella Weinberg Partners billed a monthly service fee of $450,000 plus more than $50,000 in expenses for planning a restructuring strategy and engaging in correspondence with third parties.

With FTX’s trial set for October, there are at least another six months of legal work to do for the law firms involved. Recent reports have estimated that the fees could reach in the hundreds of millions by the time the case is over, which could potentially rival the $440 million in fees that New York-based law firm Weil Gotshal made from the infamous Lehman Brothers bankruptcy in 2008.

John Ray III