Failed exchange FTX has settled with the Commodity Futures Trading Commission.
As part of the deal, the company agreed to pay a $12.7 billion fine to the CFTC, court documents said. The deal also calls for $4 billion in restitution fees and $8.7 billion in damages, subject to court approval.
The CFTC did not seek a civil penalty against FTX. According to the regulator’s representatives, given the guilty pleas and convictions of FTX insiders, the debtors already faced a very significant potential liability to the agency.
The court will consider the settlement agreement on Aug. 6. If the deal is approved, the company can begin the subsequent restructuring and debt repayment stage.
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What is known about the CFTC’s lawsuit against FTX
The CFTC filed the lawsuit against FTX and its co-founder, Sam Bankman-Fried, in December 2022. The agency accused the defendants of violating the Commodity Exchange Act and misappropriating investor funds.
The complaint alleged that Bankman-Fried directed FTX executives to develop a scheme allowing his other company, Alameda Research, to use the crypto exchange as a line of credit.
IRS claims for $24 billion
In June, FTX settled an IRS lawsuit. The department is expected to receive, at best, $885 million from the bankrupt FTX instead of the initially required $24 billion. The amount includes a priority of $200 million that the exchange must pay within 60 days after the proposed restructuring plan takes effect.
If funds remain for this purpose, the IRS will receive the remaining $685 million upon completion of FTX’s compensation payment to clients and creditors. The bankruptcy court must approve the settlement agreement.
While challenging the $24 billion claim, exchange representatives acknowledged the possibility of significant tax liabilities. However, they pointed out that their redemption could significantly impact the recovery of individual investors.
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Another FTX Compensation Plan
In early May, FTX proposed a new compensation plan under which 98% of creditors would receive at least 118% of their claims within 60 days of court approval. In this case, the remaining platform clients would receive a 100% refund.
According to FTX forecasts, the total compensation cost will be from $14.5 billion to $16.3 billion. This amount includes assets under the control of the exchange itself and its liquidators.
The company secured this amount of funds by selling cryptocurrencies, most of which were Alameda’s investments or FTX Ventures. The offer comes shortly after FTX held a below-market sale of Solana (SOL). The company sold 1.8 million SOL at an exchange price of about $100.
Debts are paid, and leaders are punished
While FTX plans payments, the courts continue to dispense justice to the employees of the collapsed site. At the end of May, former crypto exchange top manager Ryan Salame was sentenced to seven and a half years in prison. The defense insisted on 18 months, citing his cooperation with authorities and personal losses due to the collapse of FTX. He must also pay a fine of $11 million for his role in financial crimes.
Salame played a crucial role in FTX’s growth, managing its operations in the Bahamas and spending heavily. His luxurious lifestyle included expensive cars, private jets, and restaurant investments.
Meanwhile, FTX founder Sam Bankman-Fried is already serving his 25-year sentence, which he was given at the end of March this year. He was charged with fraud, perjury, and tampering during the lengthy trial.
First photo of Sam Bankman-Fried in jail at MDC Brooklyn. (December 17, 2023) pic.twitter.com/QlENjjmeQG
— Tiffany Fong (@TiffanyFong_) February 20, 2024
Let’s remember the past: how FTX went bankrupt
In early November 2022, CoinDesk obtained access to Alameda’s balance sheet, revealing that the exchange’s token, FTT, comprised most of Alameda’s assets. In addition, Alameda had $6.1 billion in FTT on its balance sheet, at least $1 billion more than the circulating supply of tokens. Alameda’s other significant holdings included SOL tokens — $863 million locked and $292 million unlocked. This meant that the ties between Alameda and FTX were much more robust than Bankman-Fried claimed.
A few days after CoinDesk’s publication, Binance founder Changpeng Zhao wrote that his exchange would sell its FTT and compared the scenario to the collapse of TerraUSD. The FTT price has dropped sharply after that. As a result, the cost of the FTT token lost 83%, and the net worth of SBF fell to $991 million.
The fall in the price of FTT caused liquidity problems for Alameda and FTX. The panic also affected other digital assets.
Zhao wrote that Binance planned to acquire FTX and help the entire market eliminate liquidity problems. However, seeing that FTX’s balance needed to be in order, Binance abandoned the purchase.
1) I’m sorry. That’s the biggest thing.
I fucked up, and should have done better.
— SBF (@SBF_FTX) November 10, 2022
On Nov. 11, 2022, FTX, Alameda Research, and 130 other affiliated firms filed for Chapter 11 bankruptcy. According to Alameda Research’s filing, it had more than 100,000 creditors at the time of bankruptcy. The company’s assets and liabilities were estimated to range from $10 billion to $50 billion.
Many companies FTX and Alameda Research have invested in have suffered catastrophic business consequences, including the Solana ecosystem and the BlockFi platform.
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