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Breaking: Global Settlement Reached in FTX Digital Markets Liquidation

FTX struck a global settlement between its US and Bahamas bankruptcy proceedings in an attempt to jointly maximize creditor payouts. Image by Александр Поташев, Adobe Stock.

The ongoing saga following the dramatic collapse of Sam Bankman-Fried‘s bankrupt cryptocurrency exchange FTX took a major new turn with a Tuesday announcement detailing a global settlement between FTX Trading Ltd. and FTX Digital Markets Ltd.

The settlement seeks to resolve the complex legal and financial issues stemming from having parallel 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 which filed for Chapter 11 bankruptcy protection in the US, revealed that it has signed 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 after FTX Trading Ltd.’s bankruptcy filing.

The settlement is pending approval by both the US Bankruptcy Court of Delaware and the Supreme Court of the Bahamas. If approved, it would allow a novel resolution to synchronize the bankruptcy and liquidation processes across jurisdictions. The joint liquidators and FTX Trading Ltd. are planning to cooperate in pooling assets, align the timing of creditor payouts, and establish 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, so creditors receive equal relative payouts.
Allowing FTX users (except insiders and certain excluded clients) to elect whether to have claims processed in US bankruptcy court or Bahamas liquidation.
Reconciling 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, not based on post-bankruptcy price fluctuations.
Classifying FTT token interests as equity, ineligible for payouts in either jurisdiction.
Developing a coordinated preference policy for reconciling transactions flagged for clawback actions across both proceedings.
Implementing unified know-your-customer procedures for verification of customer identities.

Settlement Offers Hope Amid FTX Wreckage

The settlement outlines clear divisions of operational responsibilities between the two sides. FTX Digital Markets will take the lead in monetizing Bahamas-located assets and pursuing specific litigation, while FTX Trading Ltd. will head up all other recovery efforts. Both parties agreed to fully cooperate and share information.

The FTX liquidation agreement marks a major milestone in untangling the legal and financial wreckage of FTX, which collapsed due to liquidity issues and allegations of mismanaged funds in November 2022. The firm’s founder, Sam Bankman-Fried, was found guilty on seven counts including charges of wire fraud by US prosecutors last month.

The settlement appears to offer the possibility of a more coordinated approach to recovering funds for creditors. Potential FTX account holders are cautioned that this initial agreement could face material revisions before final approval, however.

“The Global Settlement Agreement is another critical milestone for the FTX Debtors,” FTX Debtors Chief Executive Officer and Chief Restructuring Officer John. J. Ray III said 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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