Oct 23, 2023

FTX floated an amended proposal to return up to 90% of creditor holdings held at the exchange before it imploded last November.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. Good morning and welcome back to first mover bankrupt crypto Exchange. FTX floated an amended proposal to return up to 90% of creditor holdings held at the exchange before it imploded. The debtors group which is overseeing the bankruptcy process will formally file the plan by December 16th. Joining us now to discuss is Evers Sheed Sutherland partner and Colo head of Corporate Crime and Investigations. Sarah Paul, welcome to the show, Sarah. Thank you so much. Great to be here. It's great to have you here now, just set the stage for us. Tell us about the group you are representing. Yeah, so we represent um the ad hoc committee of Non US customers of FTX dot com. Um It's a very, very diverse group of stakeholders. Um We have um you know, we have entity holders, we have individual holders, but they're all international customers. Um And so now, um our membership is over 50 members and we have collectively over 1 billion um in holdings um in claims on the exchange. Uh So we're quite a significant group, those the group of uh so these are, as you said, non US customers, how are their rights to uh anything that comes out of bankruptcy court different than those of us holders? And if it's a billion dollars spread among 50 people, I assume that if quite a few of those are institutional players, what's the breakdown of institutional players versus non institutional? Yeah, I can't give you the exact breakdown but I mean, it's probably about half and half um roughly um and certainly some of them have very significant holdings, but we also have very small holders as well. Um So it is, it is quite a diverse group and we're a mix of, we have quite a few original holders, meaning, you know, folks who, you know, originally had claims on the estate and then we have some secondary holders too and how are there, how are their, um how, how is their situation different than us uh clients or us, us claimants? Yeah, I mean, you know, there, I could, I could go into the legal differences but for purposes of this and for purposes of this, you know, this settlement really, it's, it's going to be the same right? They have rights to distribution just like anybody else. Um You know, they lost money on the exchange and they're going to have the, the right to get payouts. Um and the settlement that we now have reached, um you know, which I can talk about in a minute um has a very favorable uh uh mechanism for priority distribution for them. I want to talk about the settlement in, in just a moment. But what's it been like working with FT X's new leadership? Of course, it's being led by John Jay Ray the third. How have negotiations gone? Yeah, I think negotiations have gone very well. I mean, they've, you know, it's been a very hard fought process um between us and, you know, and the debtors as well as the official committee of unsecured creditors. Um It's gone on for months and we've advocated hard for our position on customer property rights. But, you know, I think it's been collaborative and constructive and we're happy with where we are right now. All right, now tell us about that settlement. So the plan is going to be filed with the US Bankruptcy Court break down exactly. Um what creditors can expect once the plan goes through. Yeah, I mean, so we're, we're really just thrilled to have reached the settlement on behalf of our clients. Um You know, as I, as I mentioned, this has been hard fought. Um We've spent months negotiating and advocating for our legal position and this really is representing the culmination of our efforts so far. Um You know, as, as I think everyone who's watching the, the criminal trial of Sam Bateman Fried has seen, you know, the FTX dot com, customers were really the victim of mass misappropriation of their assets. Um And so that's why we on behalf of the ad hoc committee filed litigation in the bankruptcy proceeding, seeking a finding that these assets are customer property and should be available for distribution only to FTX dot com customers and not the general unsecured creditors of the FTX debtors. That's the position we've been advocating for from the beginning. And so now the settlement and plan agreement that we've reached includes a very favorable resolution of this critical issue. Um We have agreed to resolve our litigation in connection with the plan framework. Uh That's expected to result in the distribution, approximately 90% of the distributable value of the FTX debtors to be paid to customers. Um So we're very, very happy with that result. We were also able to advocate successfully for efficient mechanism for favorably resolving eligible FTX dot com customers preference exposure. Um So the agreement essentially set the allocation of value so that all stakeholders could be incentivized and aligned to maximize the value to be distributed to all creditors. It's it's a great result. So kind of if you can just a little bit, I don't know how much detail you can give here. But a couple of things, first of all, you mentioned that these are secured, they're unsecured creditors, correct? Because they are account holders, but they're not unsecured in the way other types of debt are. Uh And then you have secured creditors. So did you have to negotiate with those guys as well. What, what exactly happened here? And second of all, is it going to be the same across the board? In other words, if it's 90% for a guy with a billion dollars, is it 90% for a guy with $20,000? Yeah, let me see if I can answer that. So, I mean, we, our key argument throughout, you know, our involvement so far has been about this customer property issue. So we argued that really the assets that the FTX dot com customers placed on the exchange were their property. So the customers were not unsecured creditors at all under our argument. In fact, it was their property and they had first right to that property. Um So that was our argument. So now to dissolved the litigation and we really did want to reach a settlement because we knew a final judgment could have taken years to reach. We also knew that identifying and tracing customer assets to prove ownership would be a hurdle in many instances. So we really, we wanted to resolve that. So we resolved it by settling on this priority distribution, right, such that, you know, the F TX dot com customers, you know, were no longer arguing that it's customer property, but instead they get this priority distribution um ahead of others, which is expected to result in approximately 90% of the distributable value um of the debtors to be paid to them. And that's true for, you know, us customers as well as international customers that, that 90% figure you say 90% of value. And I, you know, I'm not going to get too much into specifics here. But ultimately, is that, is that dollar value, are you or is it going to be, uh, in crypto value? Like, what, what are we looking at here? Yeah, I mean, there's, so that's, I think a little bit to be determined. Um, so I'm not gonna, I'm not gonna answer that yet. That's fine. That's fine. No, it's just, you know, according to a lot of people, crypto is money. Um, so that's, uh, you know, they, they're, they're wondering if they're getting paid back in, in Bitcoin or in dollars? That's all, or F TT tokens. Yeah. Well, won't be that. Ok. I, I guess there, you know, we've seen the FTX estate clawing back funds from, uh, you know, different partners lately. How dependent is this on them clawing back more funds or is it at all? Yeah, I mean, they are, they have already clawed back quite a bit. Um, the, but the, but that won't affect the 90% figure, right? I mean, it affects what's in the total pot, ultimately, what's to be distributed, but it doesn't affect the percentage. So that, I mean, assuming this settlement is approved by the court, right? Um, it won't affect the percentage but of course, the more the debtors can claw back the better it is for the total pot. All right, Sarah, we are going to leave it there. Thanks so much for joining us and sharing your insight. Thank you so much that was ever shed Sutherland Attorney, Sarah Paul.

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