FTX eyes return of $9 billion in customer funds through settlement proposal

Bankrupt FTX might claw back 15% from customers with claims over $250,000 from the platform nine days before its bankruptcy by requiring them to reduce claims, per an Oct. 16 statement.

FTX is proposing a settlement to customers who withdrew more money from their accounts than they deposited in the 9 days before FTX filed for bankruptcy. This is to resolve potential “preference” claims, where creditors who receive payments right before bankruptcy can be required to pay that money back.

The offer is that eligible customers can reduce their bankruptcy claim or pay cash, equal to 15% of the net amount they withdrew during those 9 days. So if you withdrew $10,000 more than you deposited in that period, you would pay back $1,500 (15% of $10,000). This would resolve any preference liability.

Customers can vote on whether to approve this as part of the bankruptcy plan. If approved, customers who take the deal would get certainty that they won’t have to pay back the full withdrawal amount later as a preference. FTX gets some cash/reduced claims and doesn’t have to pursue preference cases against individuals.

This is part of a broader plan to see the bankrupt firm return more than $9 billion in customer funds by 2024 via a proposed settlement of customer property disputes.

The proposal

In an Oct. 16 statement, the exchange explained that the proposal would resolve the customer property litigation against the FTX Debtors and facilitate confirmation of its Amended Plan by the second quarter of next year.

The company, in an X post, said:

“If approved by the Bankruptcy Court, the settlement will create a special “Shortfall Claim” to benefit customers, as previously proposed by the FTX Debtors in July, and facilitate an offer to eligible customers to settle customer preference exposure at an agreed amount.”

Proposal Details

The FTX Debtors noted that the assets would be divided into three pools. The pools include assets for the FTX.com customers, FTX US customers, and a General Pool of other assets.

In addition to the claims on their respective exchange, FTX.com and FTX US customers would also benefit from a “Shortfall Claim” on the General Pool depending on the estimated missing assets at their exchange.

However, the estimated Shortfall Claim is around $8.9 billion for FTX.com and $166 million for FTX US customers. FTX expects customers to get up to 90% of distributable value if the bankruptcy court approves the proposal next year.

Meanwhile, the bankrupt firm anticipates that customers of both exchanges will not be paid in full, with FTX.com customers expected to suffer greater losses.

Speaking on the new plan, FTX CEO John J. Ray described it as a major milestone in the case, adding that:

“The debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers.”

15% clawbacks

According to the exchange, part of the proposal could see customers with preference exposure applicable to their claims. Customers who withdrew over $250,000 from the platform nine days before it went bankrupt might be asked to waive 15% of their claims. It said:

“Eligible customers that have a preference settlement amount of less than $250,000 during the nine-day period would be able to accept the settlement without any reduction of claim or payment.”

However, the exchange said it could exclude insiders, affiliates, customers who may have had knowledge of the commingling and misuse of customer deposits and corporate funds, and those who changed their KYC information to facilitate withdrawals when withdrawals were halted from the proposed plan.

The exchange will file the amended plan by Dec. 16.