Key Takeaways:
- FTX has agreed to a $12.7 billion settlement with the CFTC, including $4 billion in disgorgement fees
- The settlement also includes $8.7 billion in restitution fees, pending court approval.
Collapsed cryptocurrency giant FTX has reached a significant settlement with the Commodity Futures Trading Commission (CFTC), agreeing to pay $12.7 billion to resolve a high-profile lawsuit.
The deal marks a pivotal moment in the ongoing saga of FTX’s bankruptcy and regulatory entanglements.
Documents filed in bankruptcy court reveal that FTX, which declared bankruptcy in November 2022, will pay $4 billion in disgorgement fees as part of the settlement.
If approved, the agreement allows FTX and associated debtors to receive dollar-for-dollar credit toward the restitution amount based on distributions made to FTX.com and FTX.US customers and Alameda lender claims under the Chapter 11 reorganization plan.
This settlement marks a crucial step in FTX’s reorganization process, potentially paving the way for the company to stabilize and focus on its customer claims and obligations.
The outcome will be closely watched by the crypto community and regulators, as it could set precedents for how similar cases are handled in the future.
Like usual any development around FTX has led to Netizens speculating. Some suggest, if the regulator does not approve the civil monetary penalty, the entire $12.7 billion would be used to pay back FTX’s creditors
The settlement, outlined in a July 12 filing, follows extensive negotiations between FTX and the U.S. commodities regulator. “The Proposed Settlement is an integral and valuable component of the Debtors’ proposed chapter 11 reorganization plan,” said CFTC senior trial attorney Carlin R. Metzger and FTX CEO John J. Ray III.
“It resolves ongoing litigation and disputes with one of the largest creditors of the Debtors, avoids the cost and delay of further litigation, and mitigates a significant risk of diminution of the assets available for distribution to creditors.”
The CFTC sued FTX, its former CEO Sam Bankman-Fried, and FTX’s sister trading firm Alameda Research in December 2022, alleging fraud and misrepresentations related to the marketing of FTX.com as a digital commodity asset platform.
The lawsuit demanded $8.7 billion in restitution and $4 billion in disgorgement. Notably, the CFTC did not seek a civil monetary penalty, acknowledging the substantial potential liability FTX faced due to the guilty pleas and convictions of its insiders.
FTX stated that the CFTC is the “most significant single creditor” in its Chapter 11 bankruptcy case.
Source: Kroll
A hearing on the settlement is scheduled for August 6 in the Bankruptcy Court for the District of Delaware.
Andy Dietderich, partner at Sullivan & Cromwell and lead counsel for the FTX Debtors, commented, “In this bespoke settlement, the CFTC foregoes its own recovery against FTX in order to supplement the recoveries of customers and cryptocurrency lenders beyond the levels typical in chapter 11 cases.”
The collapse of FTX in November 2022 led to a significant downturn in the cryptocurrency market, wiping out an estimated $200 billion in market capitalization. Sam Bankman-Fried, the former CEO, has since been sentenced to 25 years in federal prison.