FTX Proposes Returning 90% of Customer Funds

FTX has proposed a settlement that gives creditors more than 90% of their funds.

The proposal, announced late Tuesday (Oct. 16), is set to be filed with the U.S. Bankruptcy Court in December for review and final approval.

“The proposed settlement of the customer property issues is another major milestone in our case,” John. J. Ray III, FTX CEO and the chief restructuring officer of the FTX Debtors, said in a news release.

Ray became CEO last year following the departure of former FTX CEO Sam Bankman-Fried, who is now on trial for fraud charges connected to the crypto exchange’s collapse. Bankman-Fried faces what could amount to a life sentence if convicted.

“Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers,” Ray added.

According to the release, the debtors want to split missing customer assets into three pools: one for FTX.com customers, one for FTX.US customers and a “general pool” of other assets.

“In addition to a claim against assets at their respective exchange, customers of FTX.com and FTX US would benefit from a ‘Shortfall Claim’ against the General Pool corresponding to the estimated value of assets missing at their exchange,” the release said, noting that the shortfall claim is estimated at $8.9 billion for FTX.com and $166 million for FTX US.

The announcement came the same day that jurors in Bankman-Fried’s trial heard testimony from Nishad Singh, FTX’s former director of engineering.

He told the jury that he was “embarrassed and ashamed” of the reckless and excessive spending by his former boss, even before he learned the money came from allegedly stolen customer funds.

“It didn’t align with what I thought we were building the company for,” Singh said.

Jurors saw a spreadsheet showing FTX spending $1.13 billion on a variety of celebrity sponsorship deals, just a portion of the shortfall in customer funds.

The deals “reeked of excess and flashiness,” Singh testified, admitting that despite learning customer funds were being spent by Bankman-Fried, he still OK’d transactions.

Singh also testified that he and former technology chief Gary Wang created the computer code that allowed Bankman-Fried to steal customer funds.

He told the prosecution that he understood the “Allow_Negative” feature to be “for getting FTX back the ability to get back locked forms of FTT. I was told this the day I wrote the code, by Sam and then Gary.”