The ongoing saga surrounding the dramatic collapse of Sam Bankman-Fried's bankrupt cryptocurrency exchange, FTX, took a significant turn with the announcement of a global settlement between FTX Trading Ltd. and FTX Digital Markets Ltd.
This settlement aims to address the intricate legal and financial issues arising from simultaneous bankruptcy proceedings for FTX in the US and a court-ordered liquidation in the Bahamas.
FTX Trading Ltd., the parent company operating the FTX exchange that filed for Chapter 11 bankruptcy protection in the US, has disclosed the signing of a global settlement agreement with the joint official liquidators overseeing the wind-down of FTX Digital Markets Ltd. The FTX subsidiary, incorporated in the Bahamas, entered liquidation proceedings following FTX Trading Ltd.'s bankruptcy filing.
The settlement is subject to approval by both the US Bankruptcy Court of Delaware and the Supreme Court of the Bahamas. If approved, it would facilitate a unique resolution to harmonize the bankruptcy and liquidation processes across jurisdictions. The joint liquidators and FTX Trading Ltd. intend to collaborate on consolidating assets, synchronizing the timing of creditor payouts, and establishing unified policies for valuing claims and administering proceedings.
FTX Bankruptcy Enters New Phase with Global Pact
"The Global Settlement Agreement reflects a novel and mutually beneficial solution to the complex cross-border legal issues raised by the circumstances of the collapse of the FTX group," the announcement read.
Key components of the settlement agreement include:
- Coordinating timing and distribution amounts for FTX customers in both proceedings, ensuring equal relative payouts for creditors.
- Allowing FTX users (excluding insiders and certain excluded clients) to choose whether to have claims processed in US bankruptcy court or Bahamas liquidation.
- Aligning approaches to valuing FTX customers' digital asset claims to minimize discrepancies.
- Treating all non-NFT crypto and fiat claims of FTX clients in US dollar terms as of the petition date, disregarding post-bankruptcy price fluctuations.
- Classifying FTT token interests as equity, rendering them ineligible for payouts in either jurisdiction.
- Establishing a coordinated preference policy for reconciling transactions flagged for clawback actions across both proceedings.
- Implementing unified know-your-customer procedures for the verification of customer identities.
Settlement Offers Hope Amid FTX Wreckage
The settlement delineates distinct operational responsibilities between the two entities. FTX Digital Markets will lead the efforts in monetizing assets located in the Bahamas and pursuing specific litigation, while FTX Trading Ltd. will spearhead all other recovery endeavors. Both parties have agreed to engage in full cooperation and share information throughout the process.
The FTX liquidation agreement represents a significant milestone in unraveling the legal and financial turmoil of FTX, which crumbled due to liquidity issues and allegations of mismanaged funds in November 2022. The firm's founder, Sam Bankman-Fried, was recently found guilty on seven counts, including charges of wire fraud, by US prosecutors.
The settlement seems to provide the prospect of a more coordinated approach to recovering funds for creditors. However, potential FTX account holders are cautioned that this initial agreement could undergo material revisions before final approval.
"The Global Settlement Agreement is another critical milestone for the FTX Debtors," stated FTX Debtors Chief Executive Officer and Chief Restructuring Officer John J. Ray III in the announcement. "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."
More information is expected when FTX Trading Ltd. releases its disclosure statement to the bankruptcy court, providing full details on the proposed treatment of customer claims.
For now, the settlement represents tentative progress in untangling the current situation. Tuesday's announced agreement sets the stage for a more unified approach to maximizing creditor recoveries across parallel FTX bankruptcy and liquidation proceedings.
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