Sam Bankman-Fried’s defunct crypto exchange FTX disclosed in a recent court session that it intends to fully reimburse its clients. Bankman-Fried was convicted last year for fraud and embezzling client funds before the exchange’s demise in 2022. The reimbursement, however, hinges on the precise moment FTX officially filed for bankruptcy, a time coinciding with market instability. Judge John Dorsey of the United States Bankruptcy Court granted preliminary approval for that particular date.
During the hearing, Kris Hansen, the legal representative for the exchange’s creditor committee, stated that many claims relied on currencies that saw substantial devaluation in the tumultuous time frame preceding the bankruptcy filing. Investors lodged a formal court complaint last month arguing that they are not getting a fair deal, particularly in light of the ensuing spike in Bitcoin and other cryptos in recent months.
Bitcoin’s value has increased since FTX collapsed in November 2022, surpassing $43,000, a stunning 110% rise from its roughly $20,500 worth at the time of the exchange’s demise.
Andrew Dietderich, FTX’s attorney, cautioned investors during the court session that the possible recovery should not be viewed as a guarantee but rather as a target, highlighting the high risks, work and efforts needed to get the best results.
Claimants are required to submit proof of asset ownership on the crypto exchange and subsequent losses as part of the planned reimbursement process in the United States bankruptcy court. The claims will THEN be carefully examined by restructuring advisors to determine their legitimacy.
Dietderich added that the exchange has given up on relaunching its platform since there aren’t enough buyers; it is now concentrating on making its previous clients whole. In June 2023, John J. Ray III, the current CEO of FTX, disclosed that the company had initiated the process of seeking interested parties for the relaunch of FTX.com. In November, SEC Chair Gary Gensler expressed receptiveness to a relaunch of FTX — but only provided the new leadership complies with regulatory requirements.
The recent court actions were intended to advance the lawsuit by enabling various creditor groups to secure individual investor permission for the most recent approach to recuperating their assets. According to data from Xclaim, approximately 15 million individuals collectively lost between $30 billion and $35 billion in various cryptos following FTX’s collapse in November 2022.
Following the exchange’s reimbursement intentions, FTX’s token, FTT, saw an initial 11% increase but then crashed, with a 15% loss.
The revelation that FTX won’t be reopening soon is a sobering reminder to other actors in the crypto space such as Hive Blockchain Technologies Ltd. (NASDAQ: HIVE) (TSX.V: HIVE) that some management mistakes can be fatal for a company, so they should always be vigilant and implement the best practices to stay afloat and thrive.
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