FTX Creditors Say Payout Deal Is ‘an Insult’—and Plan to Revolt

Some creditors of the bankrupt crypto exchange FTX are preparing to reject a plan that would see them recover 118 percent of the money they lost. The proposal is far less generous than it might seem, they claim.

Starting in January, the FTX creditors began to form a voting block, now made up of 1,600 claimants. The new plan is due to be put to a vote in June; the leaders of the block—Sunil Kavuri and Arush Sehgal—will urge members to vote against its approval. “The recovery percentages are drawn from a fake baseline. It’s a false narrative,” says Sehgal. “It’s an insult to creditors.”

FTX fell to pieces in November 2022 after running dry of funds with which to process customer withdrawals. Billions of dollars’ worth of customer funds was missing. A year later, FTX founder Sam Bankman-Fried was convicted of multiple counts of fraud and conspiracy in connection with the collapse of the exchange. In April, he was sentenced to 25 years in federal prison.

Filed on Tuesday, the FTX bankruptcy plan charts a path to a full recovery, plus interest, for practically all creditors—made possible, according to FTX, by the liquidation of billions of dollars’ worth of investments made by the exchange’s venture capital arm, FTX Ventures, and its sister company, Alameda Research.

Under the proposed plan, government bodies in the United States—including the Internal Revenue Service and the Commodities and Futures Trading Commission—have agreed to suspend high-value claims against FTX until creditors had been repaid (although the IRS will receive a $200 million upfront payment as part of the settlement).

“We are pleased to be in a position to propose a Chapter 11 plan that contemplates the return of 100 percent of bankruptcy claim amounts plus interest for nongovernmental creditors,” said John Ray III, the veteran bankruptcy professional in charge of the estate, in a statement. “I want to thank all the customers and creditors of FTX for their patience throughout this process.”

Although the plan affords creditors a greater recovery than FTX had previously indicated would be possible and assigns their claims priority over others, the creditors leading the voting block object to the plan on a variety of different grounds.

They take issue with the way claims have been valued under the plan. Many customers held crypto assets like bitcoin on the FTX platform, but through a process common to bankruptcy proceedings known as dollarization, their claims have instead been assigned a dollar value based on the price of those assets on the date of the bankruptcy petition. The issue is the subject of a lawsuit filed by the creditors within the bankruptcy proceeding.

When FTX fell, the crypto market nosedived, but has since rebounded. The value of bitcoin, for example, has risen from roughly $16,000 in November 2022 to more than $60,000 per coin. The market recovery is part of the reason FTX is in a position to repay customers in full, but it also means that customer claims could be less than a third as valuable under the plan—even accounting for the 18 percent interest—as they would be if mapped to the present value of crypto assets.