FTX Phoenix Rising? Customers Could See Full Repayment Despite Bankman-Fried's Fall

Former FTX clients have cause to hope they may be able to get their money back as Sam Bankman-Fried, who was found guilty of criminal fraud in connection with the catastrophic collapse of the cryptocurrency exchange in 2022, is ready to be sentenced next month.

FTX Phoenix Rising? Customers Could See Full Repayment Despite Bankman-Fried's Fall

(Photo : by Michael M. Santiago/Getty Images))
NEW YORK, NEW YORK - AUGUST 11: Former FTX CEO Sam Bankman-Fried arrives for a bail hearing at Manhattan Federal Court on August 11, 2023 in New York City.

Following the loss of about $10 billion in client cash from his firm, Bankman-Fried was found guilty in November on seven criminal counts and faces the possibility of life in prison. While Bankman-Fried used some of that money to support his opulent lifestyle, the majority of it was invested in other securities whose value has recently increased significantly.

Attorneys for FTX's bankruptcy estate informed a Delaware judge last week that they anticipate paying back consumers and creditors who have valid claims in full. Working with FTX's new leadership team, bankruptcy lawyer Andrew Dietderich stated that while "there is still a great amount of work and risk" involved in returning all of the money to clients, the team has a "strategy to achieve it."

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Positive Developments for Consumers Affected by FTX Collapse

For the thousands of consumers-up to a million, according to reports-who lost billions of dollars when FTX collapsed fifteen months ago-a cryptocurrency exchange that went insolvent in a couple of days-this is a positive development.

Those consumers faced the genuine risk that the bulk of their money had vanished due to the FTX and the cryptocurrency industry's general lack of regulation and security. During the 2022 crypto winter, several failing hedge firms and lenders lost nearly everything.

Bankman-Fried never thought the circumstances facing his firm were that bad. He asserted that all of the money was still available, despite the fact that federal prosecutors and authorities had discovered proof that the 31-year-old businessman and his senior lieutenants had been stealing billions of dollars from consumer wallets for years.

His story seems to be coming true in some respects. John Ray III, the new CEO of FTX, and his group of restructuring experts have been recovering money, high-end real estate, and cryptocurrency for months in addition to finding misplaced assets.

Even after deducting goods like the $26 million in gifts and property given to Bankman-Fried's parents and the $700 million given to K5 Global and its creator Michael Kives, who put FTX funds in businesses like SpaceX, they had already amassed more than $7 billion. The value of some of those assets has increased dramatically.

FTX had been in talks with potential buyers for a possible corporate relaunch, but those talks were called off last month.

FTX's sole official U.S. regulator, the Commodities Futures Trading Commission, previously employed Braden Perry as a senior trial lawyer. Perry said that the decision to fully reimburse users followed "the abandonment of efforts to restart the FTX crypto exchange" in favor of "a focus on liquidating assets to make customers whole."

Regaining genuine money in the hands of clients is still a difficult task. Even if a significant portion of the value has been recovered and more will likely follow, allocating substantial sums of money in bankruptcy may be difficult, especially when a sizable portion of the funds are held in non-traditional and illiquid assets.

In late 2022, Ray expressed doubts about the process, saying, "At the end of the day, we're not going to be able to recover all the losses here."

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