Will FTX’s customers be repaid?

In the times after the autumn of his crypto alternate, Sam Bankman-Fried opened a Google Doc and commenced to sort. Beneath the title “most likely unhealthy concepts” he listed potential methods, which included popping out as a Republican and arguing that “SBF died for our sins”. Mr Bankman-Fried finally determined towards each, however there’s one fiction he by no means let die. He has at all times claimed FTX was, in truth, solvent and will repay the $10.6bn it owed prospects.

Mr Bankman-Fried misplaced his empire in November 2022, nevertheless it was not till March twenty eighth that he discovered his destiny: 25 years in jail. FTX’s customers-turned-creditors are nonetheless ready. The chapter is messy, extending to over 100 entities with belongings legal professionals say are “hopelessly” mingled. So it was shocking to probably everyone besides Mr Bankman-Fried himself when FTX advised a court docket in January that it ought to have the ability to repay its 36,000 prospects in full.

FTX is sweet for the money not as a result of it was at all times solvent, however as a result of directors have clawed again belongings that its final chief government frittered away, argues John Ray III, the agency’s present boss. Rising crypto costs have additionally helped. Mr Ray’s workforce has situated $7bn in belongings, together with luxurious houses and personal jets. They reckon that one other $16.6bn flowed out of the corporate earlier than its collapse—a 3rd of which went to insiders and associates—and a few of which can be clawed again.

Mr Ray’s success in monitoring down FTX’s money has made claims on its property a sizzling commodity. Imposters have pumped up their complete worth to $23.6qn (quintillion, that’s). Though authentic claims on FTX’s debt first traded at as little as one-tenth of their face worth, reflecting expectations they might not be repaid, these certificates have nearly completely recovered their worth. One buyer is making an attempt to regain $166m of claims in court docket, having offered them for a 3rd of their face worth.

Mr Ray solely has to repay, with out curiosity, the greenback worth of consumers’ crypto accounts on the time FTX filed for Chapter 11 safety on November eleventh 2022. By then, bitcoin tokens had misplaced a fifth of their worth since Mr Bankman-Fried had barred withdrawals three days earlier. And crypto has since been on a tear. The worth of solana tokens, FTX’s largest holding, has elevated eleven-fold; bitcoin has greater than tripled in worth. This has led some collectors to sue for fee in tokens, fairly than {dollars}. They declare the tokens are their property underneath FTX’s phrases.

But FTX doesn’t have the tokens they search. Mr Ray says there have been solely 105 bitcoins left on the alternate when he took over, towards buyer entitlements to just about 100,000. In fact, prospects appear to have made a fortunate escape. Their reimbursement depends on FTX’s homeowners dropping out on their $12bn declare, the federal authorities forgoing $43.5bn in fines and taxes, and Mr Ray being allowed to promote what stays. None of this may have occurred if FTX actually had been solvent. ■

For extra professional evaluation of the most important tales in economics, finance and markets, signal as much as Cash Talks, our weekly subscriber-only publication.