FTX Debtors Propose $744M Firesale as Advance Payout Plan

• Cryptocurrency exchange FTX, alongside its debtors, has submitted a new motion in a U.S. bankruptcy court.
• The exchange has set its sights on conducting a strategic sell-off of assets.
• FTX has been actively pursuing fund and asset recovery for customer restitution. 

The collapse of the now-defunct cryptocurrency exchange FTX rippled through the global cryptocurrency and financial world in November 2022, resulting in the loss of over $8 billion in customer assets and funds. While the former CEO Sam Bankman-Fried has been convicted for investor funds misappropriation, questions about customer reimbursement persist.

To retract assets to streamline customer compensation, the exchange and its debtors are now planning a strategic asset sale.

Asset Sell-Off for Creditor Distribution

According to a motion filed with the U.S Bankruptcy Court of Delaware, FTX debtors have requested the approval of the sale of select Trust assets to safeguard against potential downward price swings in the Trust Assets and facilitate forthcoming payouts to creditors. 

The assets, valued at $744 million, consist of five trust assets from crypto asset manager Grayscale with a valuation of $631 million and one trust at Bitwise Investment Advisor LLC, valued at $53 million.

Reminiscent of their prior move to monetize digital assets, the move aims to mitigate the risk of price fluctuations to protect the value of the Trust Assets for creditors while promoting a fair distribution of funds in the Debtors’ reorganization plan.

The debtors added that the sale procedures would alleviate the cost and delay of filing a separate motion for each proposed sale, as the Trust Assets may be sold to one or more buyers in several sales.

A pricing committee with representation from all stakeholders will be set up to ensure fairness and transparency. The investment adviser will also be required to obtain at least two bids from different counterparties before any asset sale.

While the motion is newly initiated, it forms a part of the exchange’s ongoing efforts to recover assets and facilitate investor payouts.

FTX’s Restitution Attempts and Funds Pursuit

Throughout the year, FTX, under its new leadership, has been relentless in its pursuit of assets, aiming to implement controls and recover assets for financial restitution. 

The exchange proposed a settlement plan to return 90% of creditor holdings to customers on October 16. The plan included that customers of both exchanges would not be paid in full, with FTX.com users incurring greater percentage losses. 

It further stated that recoveries by both customers and non-customers hinge on an array of variables, including fluctuations in the price of digital assets, the resolution of tax and government claims, and the price at which illiquid funds or token investments can be sold, among other factors.

FTX has also initiated a string of legal proceedings against an extensive list of former partners to secure funds from every means possible.

On the Flipside

• The procedures of selling assets come with its share of challenges, from regulatory hurdles to market conditions.
• Sam Bankman-Fried’s conviction could potentially result in a lengthy prison sentence of up to 115 years.
• FTX’s creditor list includes high-profile individuals and companies, including Bloomberg, Amazon, and LinkedIn.

Why This Matters

FTX’s request to sell the Bitwise and Grayscale trust assets is a significant development for the exchange creditors and their potential to recoup the investments held in the company before its collapse.

Sam Bankman-Fried’s conviction bolsters prosecutors’ actions against malicious actors within the crypto industry. Read more:
Prosecutors Bolster Crime Crackdown Post-SBF Guilty Verdict  

Read more on the legal proceedings initiated by FTX so far for funds recovery:
FTX Revisits Past Deals for Scraps as Debtor Tensions Rise