Feb 6, 2024 - Business

FTX may be able to repay all customers and creditors

Photo illustration of Sam Bankman-Fried's silhouette in front of wall of falling pixelated coins colored dark green

Photo illustration: Annelise Capossela/Axios. Photo: Photo by Michael M. Santiago/Getty Images

FTX customers and creditors are likely to be repaid in full, an attorney for debtors of the failed crypto exchange last week told a Delaware bankruptcy court.

The big picture: The idea that FTX is anything but a smoldering crater, let alone an entity with billions of dollars worth of assets, is something of a narrative violation.

  • But that's where we're at, and you can almost hear Sam Bankman-Fried screaming "I told you so" from his Brooklyn jail cell.

Details: Some of the expected recovery is the result of lawyers and accountants managing to reconstruct the records of a company that didn't really believe in recordkeeping.

  • Some from the massive rebound in crypto prices in the 15 months since FTX went bust.
  • And then there's the equity stake in AI "unicorn" Anthropic, which FTX now says it plans to unload. SBF invested $500 million when Anthropic was valued at $3.4 billion, which means it could fetch well over $2 billion at today's reported valuation.

Caveats: The attorney, Andrew Dietderich, said that full restitution for FTX customers and creditors isn't a "guarantee," but is an "objective within reach."

  • He added that there's unlikely to be a buyer for the FTX exchange assets (i.e., the actual business), despite numerous parties having done at least preliminary diligence.

Left behind: Venture capital firms like Sequoia Capital and Paradigm pumped around $2 billion into FTX, and long ago wrote off the investments.

  • They were not mentioned by Dietderich in his comments to the court, but could be in line were there to be excess proceeds once the customers and creditors are repaid (the legal bills alone must be massive).
  • A procedural step would be for VCs to ask the court to permit the formation of an equity committee — something that hasn't yet happened, but which a source says is likely to come soon.
  • However, again, it's unclear how much money would be left over for shareholders, if any.

Elsewhere: There also are outstanding questions about what recovery would mean for the several pending clawback lawsuits (if no losses, what's the justification?).

  • Plus customer arguments that they should be repaid at current crypto prices, not crypto prices at the time of FTX's bankruptcy (an argument that the court thus far doesn't accept).

The bottom line: Even if the entire stack gets repaid in full, plus interest, it wouldn't nullify Bankman-Fried's convictions. Nor should it.

  • But it would change where FTX sits in the annals of of financial fraud, which ultimately is judged by the loss column.
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