Court Approves $12.7B Settlement in FTX and Alameda Bankruptcy Case

New York judge Peter Castel has approved a $12.7 billion settlement between the defunct cryptocurrency exchange FTX and its sister company, Alameda Research, as part of an agreement with the United States Commodity Futures Trading Commission (CFTC), officially signing off on it on August 7.

The settlement resolves a 20-month lawsuit brought by the CFTC, which accused FTX, its former CEO Sam Bankman-Fried, and Alameda Research of fraud and misrepresentation. The lawsuit claimed they falsely marketed themselves as a “digital commodity asset platform.” 

FTX and Alameda agreed to the settlement on July 12, pending final court approval, which has now been granted.

The FTX Collapse 

FTX collapsed in November 2022 amid allegations of embezzlement and misappropriation of billions of dollars in customer funds involving its owners and affiliated hedge fund, Alameda Research. Sam Bankman-Fried, the exchange’s founder, was sentenced to 25 years in prison and ordered to pay $11 billion in restitution.

As part of the settlement, FTX and Alameda will return $8.7 billion to investors defrauded by Bankman-Fried, along with an additional $4 billion. The CFTC decided not to seek a civil monetary penalty, ensuring the entire $12.7 billion will be used to repay FTX creditors.

The consent order also permanently bans FTX and Alameda from defrauding commodity customers, participating in digital asset commodity transactions, and trading digital asset commodities on behalf of others.

Creditors Demand Crypto Payment

In May, CoinTab reported that the FTX restructuring team, led by John J. Ray III, is offering a 118% return to 98% of its creditors. This offer specifically targets those with claims under $50,000, based on the value of assets in November 2022 when FTX filed for bankruptcy.

However, many creditors prefer to receive their payouts in cryptocurrency, arguing that this would better reflect the significant increase in the crypto market’s total value since FTX filed for Chapter 11 protection.

Creditors have until August 16 to vote on their preferred method of payment. U.S. Bankruptcy Court Judge John Dorsey will issue a final ruling on October 7.