The settlement agreement between FTX and Bahamian regulators resolves the conflict between the parties, and also settles customers.
Bankrupt crypto exchange FTX and its debtors have announced a global settlement with liquidators, covering FTX Digital Markets, the company’s unit in the Bahamas. Although the involved parties have signed the agreement, it is still subject to regulatory approval. Moving forward depends on the US Bankruptcy Court for the District of Delaware and the Supreme Court of the Bahamas.
The FTX settlement agreement provides a solution that will benefit affected debtors regardless of the legal requirements in either jurisdiction. For instance, the agreement will pool resources and coordinate the reserves and payments for debtors affected by the US bankruptcy proceedings or the liquidation in the Bahamas. This way, parties in both jurisdictions would receive identical amounts at around the same time.
In addition, the settlement agreement would allow customers to choose which proceeding they would prefer to be paid through, without suffering any “material economic consequences” regardless of their choice. However, customers cannot file the same claim in both proceedings.
Eligible customers must decide in Q2 2024. Any customer who does not decide will be categorized as part of the US Chapter 11 bankruptcy case.
The announcement reflects efforts to streamline both proceedings so that administrative differences would be minimal. In addition, all claims for cash or crypto, excluding non-fungible tokens (NFTs), would carry the respective valuations at the time of the petition. FTX will not calculate any difference based on price fluctuations after the petition.
FTX Settlement Agreement to Satisfy All Affected Customers
The company’s Chief Executive Officer and Chief Restructuring Officer of the FTX Debtors, John. J. Ray III noted the company’s insistence on satisfying all customers despite a variance in factors. The CEO said:
“The unique challenges raised by the conflicting filings of the FTX Debtors and FTX Digital Markets have been some of the toughest the team has faced. But we recognized at the beginning that we have an overlapping constituency: FTX.com customers. I am thrilled to have achieved a settlement so clearly in customer interests, one that also respects the important role to be played by the Joint Official Liquidators and The Bahamas in the global recovery effort.”
In March, FTX sued liquidators in the Bahamas, accusing them of wrongful claims involving the company’s assets. According to the lawsuit, FTX Digital Markets was only a “corporate shell” that founder and former CEO Sam Bankman-Fried (SBF) used to “funnel FTX Trading customer deposits and other valuable property and rights” to the Bahamas. Allegedly, SBF deliberately set up the Bahamas arm like that to sidestep American courts and regulators. The lawsuit asked the Delaware Bankruptcy judge to rule that FTX Digital Markets could not lay any real claim to intellectual property or crypto assets.
Last December, lawyers representing FTX said they “do not trust” the Bahamas government with sensitive data. They said this in response to FTX Digital Markets liquidators asking John Dorsey, the Bankruptcy judge, for access to data from the US arm’s Google, Amazon Web Services, and Slack accounts.