Forwarded from Gold Mansacks
FTX filed for Chapter 11 bankruptcy. Here's what account holders should know about this 'very messy and complex bankruptcy case.
By Andrew Keshner
(MarketWatch) -- 'If the customer deposits still exist, then customers would have the right to recover those deposits,' says one bankruptcy expert
FTX, the unraveling cryptocurrency exchange, has plummeted from its high-profile perch straight into bankruptcy court.
On Friday morning, FTX and related entities including Alameda Research, its affiliated crypto trading firm, filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the District of Delaware. FTX has a reported $8 billion shortfall, and the firm's CEO, Sam Bankman-Fried, has resigned.
The fall from grace has been swift. Now, however, the court-monitored resolution about which creditors -- from lenders to account holders -- will get paid and how much they will receive may be time-consuming and complicated, experts say.
"Customers should prepare for what could be a very messy and complex bankruptcy case," said Daniel Besikof, partner at Loeb & Loeb.
But should they prepare to get their money back? That's a potentially different story, Besikof said.
"FTX's terms of service provide that customer deposits are to remain property of the customers. If that's how it turns out, and if the customer deposits still exist, then customers would have the right to recover those deposits, likely relatively quickly. However, it's a complicated issue, and it's not clear what position FTX will take or what deposits still remain," he said.
But if the deposits are viewed as the property of FTX, chances are customers will not receive distributions until a court-ordered repayment plan is hammered out -- "which is several months away, at least," Besikof said.
In addition to the FTX bankruptcy filing, other pending bankruptcy cases feature crypto exchanges Voyager Digital and Celsius Network; crypto hedge fund Three Arrows Capital is also tied up in bankruptcy proceedings. Meanwhile, any case law on crypto bankruptcy cases abroad doesn't set precedents here.
"We really only have these three and we still are figuring them out," said Christopher Odinet, a University of Iowa professor of law and finance who focuses on cryptocurrencies and nonfungible tokens and how they mesh with commercial lending and bankruptcy rules.
So the FTX proceedings will likely get mixed up with open legal questions -- and there are plenty. Here are a few, according to Besikof: Who owns crypto assets? Are customer recovery claims valued in cryptocurrency or U.S. dollars? And when does the valuation occur?
Cryptocurrencies trade 24/7 instead of during traditional stock-market trading sessions. On Friday, Bitcoin was taking a pounding and hovering around a two-year low.
"Filing for bankruptcy was the appropriate move to give the FTX Group "the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders," John Ray, the firm's newly appointed CEO, said in a statement.
The company had "valuable assets" and Ray said he wanted to "ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency."
What is Chapter 11 bankruptcy?
There are different chapters of the U.S. bankruptcy code. One of them is Chapter 11.
In this part of the code, the debtor -- here FTX, Alameda Research et al. -- files to reorganize the business and pay its creditors. That's in contrast to other parts of the bankruptcy code, like Chapter 7, where a business liquidates property in order to pay off creditors.
A bankruptcy case hits pause on anyone's attempt to recover assets outside of bankruptcy court, Besikof explained. "The FTX collapse was extremely rapid, so I imagine FTX will need to use that breathing spell to get its act together very quickly. In the meantime, account holders should expect withdrawals to remain frozen for the time being."
By Andrew Keshner
(MarketWatch) -- 'If the customer deposits still exist, then customers would have the right to recover those deposits,' says one bankruptcy expert
FTX, the unraveling cryptocurrency exchange, has plummeted from its high-profile perch straight into bankruptcy court.
On Friday morning, FTX and related entities including Alameda Research, its affiliated crypto trading firm, filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the District of Delaware. FTX has a reported $8 billion shortfall, and the firm's CEO, Sam Bankman-Fried, has resigned.
The fall from grace has been swift. Now, however, the court-monitored resolution about which creditors -- from lenders to account holders -- will get paid and how much they will receive may be time-consuming and complicated, experts say.
"Customers should prepare for what could be a very messy and complex bankruptcy case," said Daniel Besikof, partner at Loeb & Loeb.
But should they prepare to get their money back? That's a potentially different story, Besikof said.
"FTX's terms of service provide that customer deposits are to remain property of the customers. If that's how it turns out, and if the customer deposits still exist, then customers would have the right to recover those deposits, likely relatively quickly. However, it's a complicated issue, and it's not clear what position FTX will take or what deposits still remain," he said.
But if the deposits are viewed as the property of FTX, chances are customers will not receive distributions until a court-ordered repayment plan is hammered out -- "which is several months away, at least," Besikof said.
In addition to the FTX bankruptcy filing, other pending bankruptcy cases feature crypto exchanges Voyager Digital and Celsius Network; crypto hedge fund Three Arrows Capital is also tied up in bankruptcy proceedings. Meanwhile, any case law on crypto bankruptcy cases abroad doesn't set precedents here.
"We really only have these three and we still are figuring them out," said Christopher Odinet, a University of Iowa professor of law and finance who focuses on cryptocurrencies and nonfungible tokens and how they mesh with commercial lending and bankruptcy rules.
So the FTX proceedings will likely get mixed up with open legal questions -- and there are plenty. Here are a few, according to Besikof: Who owns crypto assets? Are customer recovery claims valued in cryptocurrency or U.S. dollars? And when does the valuation occur?
Cryptocurrencies trade 24/7 instead of during traditional stock-market trading sessions. On Friday, Bitcoin was taking a pounding and hovering around a two-year low.
"Filing for bankruptcy was the appropriate move to give the FTX Group "the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders," John Ray, the firm's newly appointed CEO, said in a statement.
The company had "valuable assets" and Ray said he wanted to "ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency."
What is Chapter 11 bankruptcy?
There are different chapters of the U.S. bankruptcy code. One of them is Chapter 11.
In this part of the code, the debtor -- here FTX, Alameda Research et al. -- files to reorganize the business and pay its creditors. That's in contrast to other parts of the bankruptcy code, like Chapter 7, where a business liquidates property in order to pay off creditors.
A bankruptcy case hits pause on anyone's attempt to recover assets outside of bankruptcy court, Besikof explained. "The FTX collapse was extremely rapid, so I imagine FTX will need to use that breathing spell to get its act together very quickly. In the meantime, account holders should expect withdrawals to remain frozen for the time being."