FTX Creditors Surprised by $230M Allocation to Preferred Shareholders Amid Bankruptcy

• FTX’s debtors are set to allocate up to $230 million from government forfeiture proceedings to priority shareholders.
• This unexpected move was revealed in a recent filing and surprised creditors who voted overwhelmingly for the plan without knowing of this allocation.
• “General creditors had no say,” stated Sunil Kavuri, representative of FTX’s largest creditors. “My FTX clients feel deceived and robbed again by this estate.”

FTX directs $230 million from government seizures to priority shareholders, leaving creditors frustrated and bewildered by last-minute revelations.

FTX Allocates Seized Funds to Priority Shareholders

In a startling revelation, FTX debtors have agreed to allocate up to $230 million from government forfeiture proceedings exclusively for priority shareholders. This agreement comes as a shock to many creditors who had voted on the bankruptcy plan by August 16, without knowledge of this specific fund allocation.

Creditor Outrage Over Lack of Input

The terms of the agreement left many creditors feeling blindsided. According to Sunil Kavuri, a spokesperson for FTX’s largest creditor group, creditors had no say in this specific allocation plan, which only became publicly known on September 27, well after the vote. Many creditors are now expressing feelings of being deceived yet again by the FTX estate’s proceedings.

Financial Breakdown of the Forfeiture Proceeds

A closer look at the numbers reveals that the FTX estate will contribute 18% of total forfeiture proceeds into a special fund designated for specific shareholders, with the total amount potentially reaching $230 million. The assets subjected to forfeiture include approximately $626 million seized from entities related to Robinhood stock purchases, $379 million from third-party crypto exchange accounts, and $150 million in cash from FTX DM accounts. Additionally, about $35 million worth of assets were used to buy two private jets.

Allocation Discrepancies and Shareholder Benefits

This agreement has allowed priority shareholders to avoid the costs, fees, and delays associated with potential litigation linked to the plan and seizure proceeds. The plan also outlines up to $250,000 per shareholder in legal fees, further insulating them from financial burdens. However, regular creditors feel that this arrangement places them at a significant disadvantage.

Comparative Analysis with Other Crypto Bankruptcies

The FTX bankruptcy plan’s handling of asset repayment starkly contrasts with other notable crypto bankruptcy cases. For instance, plans for Genesis and BlockFi had provisions to repay creditors with physical crypto assets rather than cash equivalents. Many analysts believe this discrepancy could fuel further legal challenges and creditor dissatisfaction.

Implications for Future Payouts

Under the current plan, announced by FTX, 98% of creditors will receive at least 118% of their claim amounts in cash. However, critics argue that this only equates to a fractional recovery of the actual value due to the volatility of cryptocurrency prices. For example, when FTX declared bankruptcy, Bitcoin was valued around $16,000, and claimants are set to receive this equivalent in cash. With Bitcoin now nearing $66,000, creditors find this arrangement falling short of their expected returns.

Conclusion

The FTX case continues to unravel layers of complexity and contention. The allocation of seized funds to priority shareholders has only intensified the frustration among general creditors who feel voiceless in these critical decisions. As the confirmation hearing approaches on October 7, all eyes will be on the rulings that could shape the future distribution and satisfaction levels of FTX’s creditors. With the deadline for voting results and opposition submissions looming, the coming weeks will be crucial for all parties involved.