The bankruptcy reorganization plan is pending. Can FTX creditors get their principal back?

FTX exchange is expected to raise up to $16 billion to return to creditors. This is good news for investors who were worried about losing all their money.

According to FTX's bankruptcy reorganization plan, if the plan is approved by the court, investors will have the opportunity to get their principal back and receive 9% interest.

However, after carefully reading this 90-page distribution plan and its 163-page explanatory document, we found that whether FTX victims can get interest depends on an important question: Will the US government give priority to ordinary investors in getting paid?

Review of events:

FTX, a cryptocurrency exchange founded by former teenage genius Sam Bankman-Fried, suffered a bank run crisis at the end of 2022.

Then a shocking scandal broke out: FTX misappropriated customer funds, mixed them with its own funds, and used them for political donations, celebrity endorsements, and the purchase of luxury properties.

After FTX declared bankruptcy, law enforcement and government agencies such as the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Internal Revenue Service (IRS) also joined the investigation.

The CFTC has currently demanded $8.7 billion in fines from FTX, while the IRS has demanded $24 billion in back taxes.

Under U.S. bankruptcy law, the order in which creditors are paid is crucial. Ordinary creditors want to be first in line because funds may be limited and unable to meet the demands of all creditors.

FTX currently requires the CFTC, IRS, and any government agencies that may have claims on FTX assets to rank their claims behind ordinary investors, allowing investors to be paid first.

Here comes the question:

Will the U.S. government give up billions of dollars in fines and the opportunity to "save face" after regulatory failures?

What’s more, it’s reported that the majority of FTX’s depositors (79%) aren’t even based in the United States.

Angry Victim

It’s unclear what the final outcome will be. Interestingly, though, FTX’s offer of interest payments appears to be an attempt to appease angry victims.

Many of FTX’s creditors hate the proposed distribution plan because they will not be paid in Bitcoin and Ethereum, but in cash based on the USD value of FTX’s cryptocurrency on November 11, 2022, the day FTX filed for bankruptcy. On that day, the price of Bitcoin was more than 70% lower than it is today. This is really frustrating.

They will not be able to enjoy the historic rise in cryptocurrency markets this year, which has seen Bitcoin hit a new all-time high.

While some customers insist they were defrauded, one question remains: Will they get their money back at the price of Bitcoin, which crashed in 2022?