Failed exchange FTX has settled with the Commodity Futures Trading Commission.
As part of the agreement, FTX will pay a $12.7 billion fine to the CFTC, including $4 billion in restitution fees and $8.7 billion in damages, subject to court approval.
The CFTC did not seek additional civil penalties against FTX, citing the significant potential liabilities already faced by the debtors due to guilty pleas and convictions of FTX insiders.
The court will consider the settlement agreement on Aug. 6. If approved, the company can begin restructuring and debt repayment.
What is known about the CFTC’s lawsuit against FTX
The CFTC filed the lawsuit against FTX and its co-founder, Sam Bankman-Fried, in December 2022. The agency accused them of violating the Commodity Exchange Act and misappropriating investor funds.
The complaint alleged that Bankman-Fried directed FTX executives to scheme allowing his other company, Alameda Research, to use the crypto exchange as a line of credit.
IRS claims for $24 billion
In June, FTX settled an IRS lawsuit. The department is expected to receive, at best, $885 million from the bankrupt FTX instead of the initially required $24 billion.
The amount includes a priority of $200 million that FTX must pay within 60 days after the proposed restructuring plan takes effect. The remaining $685 million will be paid upon completion of FTX’s compensation payments.
While challenging the $24 billion claim, FTX representatives acknowledged the possibility of significant tax liabilities, pointing out that their redemption could impact the recovery of individual investors.
Another FTX Compensation Plan
In early May, FTX proposed a compensation plan under which 98% of creditors would receive at least 118% of their claims within 60 days of court approval. Remaining clients would receive a 100% refund.
FTX forecasts the total compensation cost to be from $14.5 billion to $16.3 billion. They secured the funds by selling cryptocurrencies, mainly investments by Alameda or FTX Ventures.
The offer followed a below-market sale of Solana (SOL). FTX sold 1.8 million SOL at an exchange price of about $100.
Debts are paid, and leaders are punished
While FTX plans payments, courts continue to dispense justice to its employees. In May, former top manager Ryan Salame was sentenced to seven and a half years in prison. He must also pay a fine of $11 million for his role in financial crimes.
Salame played a crucial role in FTX’s growth, managing operations in the Bahamas and spending heavily. His luxurious lifestyle included expensive cars, private jets, and restaurant investments.
Meanwhile, FTX founder Sam Bankman-Fried is serving his 25-year sentence, given at the end of March. He was charged with fraud, perjury, and tampering during the lengthy trial.
Let’s remember the past: how FTX went bankrupt
In early November 2022, CoinDesk obtained Alameda’s balance sheet, revealing that the exchange’s token, FTT, comprised most of Alameda’s assets.
Alameda had $6.1 billion in FTT on its balance sheet, at least $1 billion more than the circulating supply of tokens. Alameda’s other holdings included SOL tokens — $863 million locked and $292 million unlocked.
A few days after CoinDesk’s publication, Binance founder Changpeng Zhao announced that his exchange would sell its FTT holdings, comparing the situation to the collapse of TerraUSD. The FTT price dropped sharply, causing liquidity problems for Alameda and FTX.
Zhao initially considered acquiring FTX to help the market but abandoned the plan after realizing FTX’s financial instability.
On Nov. 11, 2022, FTX, Alameda Research, and 130 other affiliated firms filed for Chapter 11 bankruptcy. Alameda Research had over 100,000 creditors, with assets and liabilities estimated between $10 billion to $50 billion.
Many companies that FTX and Alameda Research invested in, such as the Solana ecosystem and BlockFi platform, suffered significant business consequences.
