Claire Huang
Senior Business Correspondent
Updated
May 17, 2024, 07:44 PM
Published
May 17, 2024, 06:00 PM
SINGAPORE – Customers and creditors burnt by the bankruptcy of American cryptocurrency exchange FTX are projected to get payouts and these might be extended to the firm’s investors, including Sequoia, SoftBank and Singapore’s Temasek.
The development comes as FTX said on May 8 that almost all customers who lost money in the November 2022 collapse of the exchange will get their money back.
It said it owes creditors about US$11.2 billion (S$15 billion) but the firm has between US$14.5 billion and US$16.3 billion to distribute to customers and non-governmental creditors after it sells all its assets.
Mr Robson Lee, a partner at law firm Kennedys Legal Solutions, told The Straits Times that in bankruptcy proceedings, customers and other creditors get paid first before investors.
FTX laid out a proposal to a US bankruptcy court that the payouts will be based on what accounts were worth in late 2022 when the market was down. The repayments will be pegged to the US dollar and these have drawn the ire of creditors.
As the dollar value of the assets recovery is higher than the dollar value of the debt that the company owes, “it can be envisaged that investors like Temasek and Sequoia are likely to get back some money”, Mr Lee said.
When asked, Temasek declined to comment.
In mid-November 2022, Temasek said it would write off its US$275 million investment in FTX “irrespective of the outcome of FTX’s bankruptcy protection filing”.
The state investor had held a 1.5 per cent stake in FTX and the investment constituted 0.09 per cent of its $403 billion portfolio as at end-March 2022.
Mr Lee said because of the currency exchange, FTX customers in Singapore are likely to get payouts of a higher dollar value.
But he noted that the market value of cryptocurrencies has risen since November 2022.
“So, while Singapore customers are likely to get back a higher sum of money as opposed to the traditional haircuts that customers and creditors are expected to face in an insolvent situation... the higher sum of distributions will not reflect the current market value of cryptocurrencies,” he said.
Reports said most creditors anticipate disbursem*nts later in 2024.
Under FTX’s re-organisation plan, customers whose claims amount to US$50,000 or less will receive roughly 118 per cent of the amount of their allowed claim. About 98 per cent of creditors will receive this compensation.
But some creditors have described the plan as “insulting”.
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Their unhappiness stems from how the payouts are much lower than the current market value of cryptocurrencies. This is because insolvency advisers are pegging the values of creditors’ crypto holdings to the US dollar, and at a time when the market was down in 2022.
Observers noted that customers missed out on a crypto rally that has quadrupled the price of Bitcoin.
The price of Bitcoin was hovering around the US$16,500 mark in December 2022, compared with US$65,600 at the time of writing on May 17.
But Mr Lee said the bankruptcy proceedings are US dollar-based as there has to be certainty in the value of assets and liabilities of the distressed company, similar to other companies in any other industries in an insolvent situation.
Going forward, the restructuring advisers will table a payout plan and proposal to end the Chapter 11 proceedings before the company’s creditors.
The US court will take due cognisance of the outcome of the creditors’ vote before deciding whether to approve the plan, said Mr Lee on how the proceedings would go.
FTX filed for bankruptcy in November 2022 after its founder Sam Bankman-Fried shut down the company’s crypto-trading platform and handed control to insolvency experts.
Bankman-Fried was convicted of fraud, conspiracy and several other offences in 2023.
In March, he was sentenced to 25 years in jail.
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- Temasek Holdings
- Cryptocurrencies
- Fraud
