🌋 FTX Scandal Deepens: Creditors Fume Over Minimal Payouts
posted 30 Sept 2024
The fallout from FTX’s bankruptcy continues to escalate. Newly revealed details about the size of expected compensation have sparked outrage among creditors. It has come to light that a portion of the funds recovered from the liquidation of the exchange's assets is set to go to preferred shareholders.
This came to light through FTX creditors' representative, Sunil Kavuri, who disclosed the latest revised bankruptcy documents.
According to the update, 25% (roughly $230 million) of the proceeds from the sale of FTX assets will be placed into a special fund for certain major shareholders, whose names remain undisclosed. This decision was made without consulting retail creditors and only surfaced after the majority had already approved the primary bankruptcy plan.
These additional provisions were added to the final document after the general vote, which took place on August 28, 2024—a clear breach of legal protocol.
However, there is a silver lining: since the process appears to violate legal guidelines, creditors may have grounds to challenge the decision in court, although doing so could further delay any potential payouts.
These additional provisions were added to the final document after the general vote, which took place on August 28, 2024—a clear breach of legal protocol.
Post-Vote Amendments
Creditors feel misled, believing their interests have been unfairly compromised. They point out that the original bankruptcy plan made no mention of extra payments to shareholders, and they had expected all available funds to be used to cover their losses.
The final blow for creditors was the decision to calculate compensation based on asset prices at the time of the bankruptcy.
For example, in November 2022, Bitcoin was priced at around $16,500, while today it’s trading at $64,500. This means that victims of FTX’s collapse may only receive 20–25% of their total losses. With additional funds being diverted to major shareholders, the compensation for regular creditors could be even lower.
Sunil Kavuri, representing retail creditors, stated, “FTX users are suffering from mental health issues, panic attacks, depression, and suicidal thoughts due to the loss of all their savings.”
Legal and bankruptcy experts note that this kind of asset distribution is highly irregular and indicates potential conflicts of interest among FTX leadership.
However, there is a silver lining: since the process appears to violate legal guidelines, creditors may have grounds to challenge the decision in court, although doing so could further delay any potential payouts.
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