FTX Settlement Approved

Judge P. Kevin Castel of the United States District Court for the Southern District of New York approved a $12.7 billion settlement agreement between FTX, Alameda Research, and the Commodity Futures Trading Commission (CFTC), as per a court filing on Wednesday.

Defunct crypto exchange FTX and associated trading firm Alameda Research had previously agreed on the settlement amount with the CFTC in July after months of negotiations, awaiting the consent order’s approval.

This settlement concludes the lawsuit filed by the CFTC against the exchange, former FTX CEO Sam Bankman-Fried, and Alameda in December 2022, alleging their fraud resulted in customers losing $8 billion. The agency initially sought a claim of $52.2 billion.

As part of the settlement, the CFTC will receive nothing as long as FTX adheres to its reorganization plan. Thus, FTX will allocate the full $12.7 billion to creditors, dependent on available funds. According to a July court filing, the CFTC is considered “the most significant single creditor” in FTX’s Chapter 11 bankruptcy cases.

FTX and Alameda are mandated to pay $8.7 billion in restitution to the victims of their violations of the Commodity Exchange Act, along with an additional $4 billion in disgorgement for unlawful gains.

The restitution and disgorgement will be administered through the firms’ ongoing bankruptcy proceedings, using funds or assets to repay creditors, managed by either FTX Trading’s interim CEO John Ray or the plan administrator for compliance with the court’s order.

Beyond the settlement, the FTX defendants and affiliated parties are also permanently barred from engaging in any trading or transactions involving “commodity interests,” including digital assets like bitcoin, ether, or USDT, either directly or indirectly.

FTX and Alameda must fully cooperate with the CFTC in any related investigations or proceedings, including providing necessary documents and testimony.

FTX’s Bankruptcy Collapse

FTX sought bankruptcy protection in November 2022. The debtors revealed their reorganization plan in May, intending to provide 98% of its creditors with at least 118% of their approved claims. Creditors with claims below $50,000 will qualify for the 118% payment upon court approval.

Some stakeholders, particularly those representing FTX’s largest creditor group, have opposed the plan, advocating for cryptocurrency payouts instead of dollar-value repayments at the time of bankruptcy. Votes on the plan are due by August 16.

Bankman-Fried was convicted in November 2023 on seven criminal counts, including two counts each of wire fraud and conspiracy to commit wire fraud, receiving a sentence of nearly 25 years in prison. The U.S. Securities and Exchange Commission has also charged him with fraud.