FTX creditors will make money on bankruptcy
cnbc.com
cnbc.com
The estate has recovered around $16B of the money, or basically close to half of the assets at the time, the bulk of the money is coming from bitcoin tripling in value, to put it another way if Bitcoin was same prices as 2022, then they would have only recovered ~ $5B or FTX continued operating without being frozen by the courts, they would need come with $33B to make their depositors whole in Bitcoin.
Source? I thought FTX's estate barely held any crypto.
Notably SOL sales accounted for close to half of recovered money here is a link to the last batch of $2.6B sale they made in May 2024 (https://dailycoin.com/ftx-estate-sells-last-2-6b-of-heavily-...)
There was controversy from creditors over the steep discount, a discount itself is not unusual given the size of the block sale and the fact the tokens are locked for 4 years with monthly vesting. Naturally there was dispute on how much discount is acceptable .
while Solona has grown 10x in price since the bankruptcy, it is not like people who had deposited SOL tokens are now covering for other deposits with just their holdings.
What depositors assets had against their accounts at the time had little correlation to what FTX itself had as assets, the two most popular tokens Bitcoin (0.1%) ETH(1.2%) assets were lot less than what they would have been just storing the customer tokens as is.
It is simpler to talk in bitcoin price given its popularity and use as baseline rather than prices of tokens and assets actually held by FTX itself or by users on FTX.
FTX made a good number in the double digits of investments and acquisitions. (https://www.crunchbase.com/organization/ftx-exchange/recent_...)
I believe Anthropic was the most acclaimed/highest current value, and they still have about 1/3 of the original 8% investment.
a) I am curious at what discount they sell Anthropic shares right now;
b) I am not sure what is the prognosis for the other shares FTX owns;
[ c) which creditors have preference to which money pot; usually there is a pyramid. Here it talks about consumers. (Specifically those owed less than $50k.) And there is a separate matter for shareholders who are looking at getting some of the seized by DoJ proceeds. (https://www.reuters.com/legal/crypto-exchange-ftxs-liquidati....)
]
Best way in general is to read the actual pleadings: news is not the best at giving a good idea what the court is actually ordering.
They didn't have the money. These gains are due to appreciation.
https://www.forbes.com/sites/dereksaul/2023/01/11/bankrupt-f...
Anthropic was another $1 billion
Straw man. You said SBF "was technically not lying about FTX having the money." He was. If you ask me to hang on to your $12 and I spend half of it, I don't have the money.
> How many other exchanges have enough assets on hand to cover every depositor at once instantaneously?
All of them. Exchanges and clearinghouses in a proper financial system are fully collateralised.
> this is what a bank run is and is why central banks exist
Banks are leveraged. FTX was not supposed to be levered. It should have been able to survive a "run," because it wasn't supposed to have asset-liability mismatches.
According to coinmarketcap and coingecko, there are 200+ exchanges. you're saying all of them are fully collateralized? doubt it.
In crypto? No. Because it's a marketing term there for brokers. FTX was, at the end of the day, a broker. (As is Coinbase and the other "exchanges" for how most people use them.)
In finance? Yes. Most exchanges (all in the U.S.) don't handle settlement; that's done by a clearinghouse, where the counterparty risk lives. They're fully collateralised [1].
[1] https://dtcclearning.com/products-and-services/settlement/ri...
The reference amount that's being "repaid" is a low quote from near the bottom of the crash. Nobody signed up for this correlation between (1) crypto price crash and (2) the exchange halting withdrawals. It was a straight-up theft of optionality.
That said, the repayments do exceed expectations. That is newsworthy. I just wish they could report that news factually.
But sitting here, we can't really know why we're being lied to. All we can do is take note of the lies, and of who's repeating them.
When Bernie Madoff or Enron or any of the other major headline-grabbing frauds fell apart, the victims generally got back almost nothing. The fact that FTX is returning all of the user's money, plus interest, is quite unique and newsworthy.
Funny thing about madoff is that it is still ongoing, distributions have diminished but last one was this year: https://www.madofftrustee.com/index.php?mobile=false
Where madoff is a bit different is that they were more aggressive in taking money back that people took out. You’re really only getting back what you put in (and obvious losses through time value of money).
And madoff didn’t gamble with the money, he mostly just sat on it.
"That said, the repayments do exceed expectations. That is newsworthy. I just wish they could report that news factually."
So to flip it back on you: repaying the lowball marks, but not the actual full stolen value, is an interesting story on its own. No lies and exaggerations from the media are needed.
Also, where you write:
> "The fact that FTX is returning all of the user's money..."
No. This is not a "fact". This is a lie. You have been misinformed. That's my whole point. Do not call it a fact.
The truth is if you had one Bitcoin in FTX, that was worth 20k. You might have bought for more or less than that. Now it's worth 60k. You didn't get the 20k back immediately (in which case you could have repurchased the Bitcoin immediately and not lose anything).
- If you bought Bitcoin above 20k, you lost money, whereas you wouldn't have otherwise. - If you would have kept your Bitcoin, you would have 60k now. You didn't get a choice in the matter.
The problem if of course "what is money" — the thing you owned was a Bitcoin, and now you're getting back its value from back then in dollar terms. This value changed meanwhile, shocking! But quite clearly, most people would have had more money now if that hadn't happened.
So while it's possible that some people would have sold lower than 24k (it didn't stay that low very long), most people wouldn't have, and so they lost money, in the commonly accepted undertanding.
Imagine the government seized your house 10 years ago, then paid you back today its price from 10 years ago +20%. Did you not lose money?
Imagine you put up your house as an investment into some crypto exchange and the exchange goes bankrupt because it turns out they're misusing customer funds and defrauding their customers. You'll get your house back when legal proceedings are done. What value that house has before or after is sort of irrelevant except as a way for you to twist the issue to fit your narrative. Nobody made you put up your house in some nonsense crypto exchange. That was you.
Be glad the government is involved at all or you might not be getting anything back.
If you looked at Bitcoin, whose entire pitch is that it's a poorly regulated speculative instrument, and thought "I'm going to put my house in this" you are an adult accepting unreasonable levels of risk.
Just because FTX (predictably) was run by a con man who got his whole company shut down DOESN'T MEAN that you're a victim. You gambled money you didn't have on a system you didn't care to understand and you are lucky to even get the money back.
This. I'm constantly surprised that the government helps people in these situations. If they want the government to be involved, they should push for crypto to actually follow all of the laws that apply to traditional financial things, which would eliminate a lot of these scams that end up requiring government intervention in the first place.
Regulation and protection go hand in hand, if you don't want the regulation, you shouldn't be able to ask for the protection that goes along with it. If you want to gamble your real money by converting it to fake digital tokens, that's fine, but you shouldn't ask the government to use taxpayer money bail you out afterwards. If you want government protection for investments, you should invest in schemes that are regulated by the government instead.
> And even taking into account the potential for achieving anticipated recovery levels, which is by no means assured, customers still will never be in the same position they would have been had they not crossed paths with Mr. Bankman-Fried and his so-called brand of “altruism.”
The opportunity cost is real and cannot be ignored.
I'm just saying the title is not misleading.
They mentioned it is bankrupt and by definition creditor rights are curtailed.
Effectively they invested $100, that investment dropped to $0 (while funds were locked away during bankruptcy), and now they're worth $119.
The headline is only notable as usually creditors do not get 100% of their initial capital back during a bankruptcy, nevermind over 100%.
IMO it absolutely should in this case, especially since the creditors demonstrated their desire to invest in the opportunity being considered, but I don't really care enough to argue about it over the Internet.
And that was a far from victimless crime as well.
its just a bankruptcy case being handled well, and far faster because of the blockchain records showing where things went.
A couple differences between them but the biggest one may be how hard the USA goes on financial crimes.
Bitcoin was trading at 17k, it is now 62k.
FTX creditors didn't hold US dollars. They held crypto. A good chunk didn't even buy any of the crypto WITH US dollars. Many are in countries that US dollars is not legal tender.
Guess what they're getting back for their claims?
You guessed it. US Dollars.
To instead get back everything in dollar terms with a gain is remarkable.
If you sent crypto to FTX legally you no longer owned them. You owned a claim to $X on FTX. It just wasn't analogous to a regulated broker where the client is the legal owner of a security. Iirc the contract with FTX is the creditors sold their stake to FTX.
It is valuable to explain that these creditors underperformed simply holding crypto but calling it "fake news" really misrepresents the situation.
Why US Dollars? FTX.us was domiciled in the US but FTX.com was in Bahamas. Why not some other arbitrary currency? Why not Bahamian dollar? Why not in Bitcoin?
FTX has paid close to 1 billion dollars in fees to army of lawyers, consultants, bankers etc. in what was even at the time an 8 billion dollar bankruptcy. Even if FTX froze in time and did nothing at all, its assets would've recovered completely that 8 billion gap in its funding. It's been a boon to everyone involved and they're taking full advantage.
I have no sympathy for FTX. It was a clear case of theft. However the creditors are getting robbed twice. Once by FTX, once by the bankruptcy proceedings.
The company went bankrupt. Bankrupt. They did not have the assets they purported to have.
FTX owed money to a variety of creditors including to crypto traders who deposited. They gambled on handing over their assets to a largely unregulated entity and it went bust.
If a regulated securties broker goes bankrupt you still own the securities. Brokers need to follow very strict laws to be in that position.
FTX faced no such regulation and if you sent them crypto you no longer owned it. FTX did.
And they went bust. What you're saying makes sense if FTX were a US registered securities broker for listed securities on an exchange.
But that wasn't what it was. And they went bust.
A bank can go bankrupt and your deposits might be in jeopardy, because there is fractional reserve banking and by law they are allowed to hold far less (in the US it would actually be 0%) of your deposits and can deny your request to redeem your assets in full in cash. That is to prevent bank runs.
FTX was an exchange, and while the holding company can go bankrupt the customer assets should be always fully funded in segregated accounts. FTX stole from customers and used the fund to front run their own customer via Alameda research.
Most of FTX customers were outside US and are not US residents. US Dollars in this context holds no significance.
For the record, FTX.us was a registered broker.
https://brokercheck.finra.org/firm/summary/158816
And with SEC as an exempt broker.
https://www.sec.gov/Archives/edgar/data/1876386/000187638621...
FTX marketed itself as an exchange. That didn't make it one. Giving it money was legally akin to handing any small business in your town money.
> Most of FTX customers were outside US and are not US residents. US Dollars in this context holds no significance.
FTX was a U.S. company. Even the Bahamas outfit had U.S. dollar bank accounts. FTX's customers were obviously subject to U.S. jurisdiction.
> FTX.us was a registered broker
They owned a FINRA-member broker-dealer. Most FTX customers weren't doing business with its b-d.
> with SEC as an exempt broker
Not what Form D means. ("Exempt broker" isn't a thing under U.S. securities law.)
Also, side note, banks can refuse withdrawals but specifically not to prevent a bank run [1]. A bank restricting withdrawals due to illiquidity is going under FDIC conservatorship.
[1] https://activitycovered.com/can-a-bank-refuse-withdrawal/
This is at best only partially true, you own a claim on the underlying asset.
This is not a matter of regulation, it's a matter of your contractual agreement with FTX.
I don't know how more regulated brokers work, but I also doubt you own the asset outright, you also probably own a claim, which is why if the broker goes bankrupt because of fraud you might not recover it.
Regulation wouldn't have changed anything here: as FTX simply broke the law, which they could have done regardless of regulation & reporting requirements (e.g. WorldCom, Enron, ...).
What they did was not legal, even wrt to what regulation they were subjected to.
No, you're describing a secured claim. No crypto exchange I know of voluntarily gives customers a secured claim. At the moment of bankruptcy, unsecured claims are a claim on the company. Not on any asset.
> don't know how more regulated brokers work
The assets are segregated and customer claims prioritised and guaranteed by the SIPC.
> Regulation wouldn't have changed anything here: as FTX simply broke the law
None of what FTX did would have been remotely plausible if they'd been regulated as a broker-dealer. They'd have failed their FINRA audit on day one.
Not saying what they did is impossible at a regulated b-d. It would just take a lot more thought and work than the shitshow they were running [1].
[1]. https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-...
Maybe in a real bank you do. Not in cryptoland. "Not your keys, not your coins" as they are so fond of saying.
There weren't segregated. The segregation claim was made by an entity in bankruptcy. FTX's customers have unsecured claims.
> if FTX froze in time and did nothing at all, its assets would've recovered completely that 8 billion gap in its funding
The FTX estate barely held any crypto when it went under.
> “I’ve never worked on a bankruptcy case that got better. It always gets worse,” said Commissioner Raquel Regalado, a lawyer who now works as a broadcaster. “The idea of just getting out as early as possible seems like a great idea to me. “
Those were some expensive words. And in general, always somewhat expensive words because the hedge fund buyers generally don't work "lose" into their models.
https://www.miamiherald.com/news/local/community/miami-dade/...
Selling your claim is only a good deal if the hedge funds are drunkenly stupid, you have no other assets/lending sources and are going to die soon or have debt at payday loan rates.
Or put another way - if there were an investment opportunity that that had an 80% chance of 3x-4x returns in the next 2-3 years, I might consider investing 25% or even 50% of my net worth in that opportunity. But I certainly wouldn't invest 95% of my net worth.
Your cited article makes it abundantly clear that the provenance of said $17 million claim was a default clause entitling Miami-Dade County to three years worth of naming-rights fees.
They sold that speculative claim for $5 million cash---effectively recovering that year's otherwise uncollectible receivables---then immediately turned around and locked in a 17-year, $117.4 million agreement with Kaseya[1]; back-of-the-envelope says that's an implied ~$5.4 million (2023 dollars) per year with 3% annual inflation adjustment baked in.
Call me naive, but I imagine that if you're in the business of running a multi-purpose arena with real opex, you've gotta be the dumbest risk manager in South Florida to allocate expensive legal resources in chase of speculative claims when a mutual opportunity to repair a gapping hole in your balance sheet presents itself and you have a willing long-term replacement suitor lined up.
[1] https://www.miamidade.gov/global/news-item.page?Mduid_news=n...
Usually when you have several suitors that purely have profit in mind, you're the mark. Doubly so when their cost of capital is higher than your own.
> to allocate expensive legal resources in chase of speculative claims
On a claim this big, the bankruptcy trustee takes care of that for you. They're literally a fiduciary. The cost would be reading whatever gets mailed to you, but at the end of the day, there isn't much control you have over the ultimate outcome.
And uhhh, in terms of credit worthiness, Kaseya has an interesting history: https://en.wikipedia.org/wiki/Kaseya_VSA_ransomware_attack .
They they sold the stake ultimately worth 17 million, but they got their rights back, which they resold for 16 million. As long as they sold their stake for 1 million or more, they are in the green.
(They won on the reselling of the naming rights too by leasing them out for more per year than ftx)
I find it weird that you condemn that decision based on perfect hindsight.
> Selling your claim is only a good deal if the hedge funds are drunkenly stupid, you have no other assets/lending sources and are going to die soon or have debt at payday loan rates.
Selling your claim reduces your exposure and eliminates the risk that you'd get even less after the bankruptcy process concludes. It also lets you book the loss now and move on. That's valuable to some people. Consider that people have different motivations and needs than you do.
Yes, he was.
The reason people are being made whole now is that a couple of years down the line, some of his investments and acquisitions are now worth considerably more than they were at the time of bankruptcy. But at that point t FTX was insolvent and SBF was telling lies all over the place.
https://www.forbes.com/sites/dereksaul/2023/01/11/bankrupt-f...
Anthropic was another $1 billion
FTX was insolvent at that time.
And the FTX token that had a run triggered was something like 90% held by FTX - the value they accounted for was based on a tiny circulating pool of them. It was almost the classic "If I print 10m of these, and sell you one for a dollar, I've got tokens worth $10m now, right?"
In the US, a regulated exchange is required to hold your securities in segregated accounts, and cannot play fun games with them. Crypto "exchanges" are a joke.
> It did not help that CZ triggered a run on the assets at the worst time; otherwise it likely would have been fine
I find that unlikely. SBF was doing a bunch of risky things with FTX's assets. If he hadn't been found out, he likely would have done more and more risky things, and as Bitcoin's price recovered, he would have used that higher price to justify doing even more risky things.
I doubt there would have been many (if any) times when FTX could have paid out all its depositor obligations.
They're not a lender, they're just an exchange. Regardless of taking on debt to manage settlement, the fact that people did not own the assets in their FTC accounts is insane.
> "We are poised to return 100% of bankruptcy claim amounts plus interest for non-governmental creditors."
For what it's worth, the article also points out that Bitcoin has gone up 260% since FTX's failure, so if FTX had not collapsed, somebody hodling their BTC there might have earned 260% instead of 19%.
That’s part of the whole issue - SBF was just doing whatever he felt like with customer assets and balances. Plus inventing assets out of thin air.
The profit that people will get has largely been driven by FTX’s investments in AI stuff, which turn out to have done great.
Think about it this way (exaggerated to make a point) - you give SBF $10k to buy Bitcoin on FTX. You expect him to have that amount of BTC locked away somewhere for you. Instead he blows your $10k on houses for himself, giving money to politicians, sponsoring sports grounds and buying stuff for his parents. He’s throws some of it into AI firms.
At the time of bankruptcy all he’s actually holding for you is $200 of BTC. That goes up in value to $460. W00t.
But wait, two years later those few million he threw at AI seemingly for shits and giggles are now worth a few billion, so you can be made whole and even get a little profit.
Instead, they are getting 119% of the USD value of a bitcoin in late 2022. They are massively losing out. They are effectively getting back 33% of their assets.
Dunno what the breakdown between bitcoin and cash creditors are, but the only way to make bitcoin creditors more whole would be to stiff the cash creditors.
And the FTX token creditors are making [DIVIDE BY ZERO]
Not an exact analogy but I think it at least shows there is a spectrum of situations to consider.
"Why aren't debt creditors getting made whole (as of date of bankruptcy) with the balance going to equity holders, like every other bankruptcy?"
My guess would be anything above what the customers get may well go out to government fines rather than returning to the equity holders.
>Can I still file a claim?
>The Kroll Portal will remain accessible after the Bar Date to amend or file a claim. Absent order from the U.S. Bankruptcy Court for the District of Delaware, any claims filed after the bar date may be disputed.
So it might still be worth filling out the form - who knows.
Fun fact: I got a permanent ban from the r/cryptocurrency discord for saying exactly this.
Exchanges shouldn't be like banks. FTX should have had customer assets on hand to return, no matter what. That's how regulated exchanges are supposed to work. But this is crypto-land, where nobody does the right thing.
the truth is that in the US none of this gets prosecuted while people are making money, or being reimbursed as a remedy at the company's own volition.
very few exceptions, you basically have to piss off a completely different industry, like bragging about raising drug prices instead of silently like everyone else, for prosecutors to search for improper accounting to nail you with.
Because that was the issue wasn't it? They said they were holding stuff for customers, but didn't. The way I understood it the fraudsters only held a fraction of the Bitcoin they were supposed to hold, for example.
How would the scenario work where bankruptcy wasn't declared? They would have refused to provide assets to customers, the customers would have sued, and the fraud would have come out anyway.
Delaying discovery when you're underwater on your obligations means you're just piling on more crimes. Which is probably what lawyers explained to the chief fraudster. It gets harder and harder to claim an honest mistake.
You go to jail. It’s not a hypothetical.
https://casetext.com/case/people-v-kotlarz
https://case-law.vlex.com/vid/people-v-haissig-2110726-88540...
Worst comes to worst tax payer bails again the banks out.
I'd prefer that the government fund food for children rather than confidence men/women
Fred Smith taking the company's last $5K to Vegas and luckily winning $27,000.
Mind you at that point, pilots were putting fuel on their personal credit cards, payroll had been bouncing for weeks.
(Funnily, some people here think he did the right thing.)
I chalk it up more to myth building and would love to see a reporter that dug into that story to know what actually happened.
The difference is it was the companies money - not FedEx customers.
But, if the investments hadn't hadn't gone bad and FTX hadn't run out of money, it's probable that no one would have known that he had stolen/borrowed customer money. The same probably goes for Elizabeth Holmes/Theranos and Nick Leeson/Barings Bank - its only when things go wrong that misdeeds are found.
Counterpoint: Shkreli.
Don't look at this as validation of SBF's methods. This was luck. And there still isn't enough to make customers whole. For customers who deposited Bitcoin, for example, they're now still a lot worse off than if they'd held onto the coins themselves. Sure, they're getting back the cash value of their Bitcoin from several years ago (plus interest), but if they got the Bitcoins back, they'd have significantly more.