$12.7 Billion Resolution: FTX and CFTC End 19-Month Lawsuit

FTX, the bankrupt cryptocurrency exchange, has agreed to a $12.7 billion settlement with the US Commodity Futures Trading Commission (CFTC), concluding a 19-month-long lawsuit. This settlement, which followed extensive negotiations, now awaits court approval as per a filing on July 12.

In a joint statement, CFTC senior trial attorney Carlin R. Metzger and FTX CEO John J. Ray III underscored the settlement's importance. They highlighted that the settlement is crucial for FTX's proposed Chapter 11 reorganization plan. It resolves ongoing litigation with one of FTX's largest creditors, avoids further legal expenses and delays, and mitigates the risk of asset depletion for creditor distribution.

The CFTC's lawsuit, filed in December 2022, accused FTX, former CEO Sam Bankman-Fried, and Alameda Research of fraud and misrepresentation, alleging that FTX.com was falsely marketed as a digital commodity asset platform.

According to the settlement terms, FTX will pay $8.7 billion in restitution and $4 billion in disgorgement. The CFTC chose not to impose a civil monetary penalty. FTX acknowledged its liability, citing the conduct and convictions of its insiders, which created significant potential liability to the CFTC. The CFTC is recognized as the most significant creditor in FTX's Chapter 11 bankruptcy cases.

A court hearing on the settlement is set for August 6 in the Bankruptcy Court for the District of Delaware. The proposed reorganization plan promises a 118% return for 98% of creditors with claims under $50,000, based on the US dollar value of assets at the time of FTX's bankruptcy filing in November 2022.

However, creditors are divided over the payout method. Many prefer payouts in cryptocurrency, considering the market's 166% increase in market cap since the bankruptcy filing. Creditors are voting on their preferred payout method, with the deadline set for August 16. US Bankruptcy Court Judge John Dorsey will make a final decision on October 7.

Legal representatives noted that a jury found Bankman-Fried guilty of misappropriating at least $8 billion from FTX customers. Bankman-Fried has been ordered to forfeit $11 billion and plans to appeal his sentence and conviction.

This settlement marks a pivotal step for FTX in resolving its bankruptcy and legal disputes with major creditors. It highlights the challenges of addressing large-scale financial fraud in the cryptocurrency industry and the ongoing efforts to recover assets for affected stakeholders.