In a recent court hearing in Delaware, the failed crypto exchange FTX announced its decision to abandon efforts to restart its crypto exchange and instead liquidate all assets to refund its customers, according to an attorney representing the company.
Per a Reuters report, FTX had negotiated with potential bidders and investors for several months. Still, no party was willing to provide sufficient funding to rebuild the exchange.
FTX Shifts Focus To Asset Liquidation And Repayments
During the court hearing, Dietderich emphasized that the objective of returning funds to customers was not a guarantee but an “ambitious goal.” He acknowledged the “considerable” amount of work and associated risks involved but expressed confidence in the company’s strategy to achieve it. The lawyer asserted:
I would like the court and stakeholders to understand this not as a guarantee, but as an objective. There is still a great amount of work, and risk, between us and that result. But we believe the objective is within reach and we have a strategy to achieve it.
The failed negotiations shed light on the fact that FTX had significant underlying flaws. Founder Sam Bankman-Fried allegedly lacked the necessary technology and administrative infrastructure to sustain the company as a viable business, stated Dietderich.
Additionally, the former CEO of the company Bankman-Fried has been convicted of fraud charges related to his involvement with FTX.
Dietderich further highlighted that FTX’s creation was an irresponsible sham led by a convicted felon, asserting that the costs and risks of transforming the remnants left behind by Bankman-Fried into a functioning exchange were simply too high.
As a result, FTX will now focus on liquidating its assets to repay customers whose cryptocurrency deposits were locked when the company filed for bankruptcy in November 2022.
Dietderich informed the court that FTX had managed to recover over $7 billion in assets to fulfill customer repayments. Additionally, agreements have been reached with various government regulators, who have agreed to postpone their claims until customers are fully repaid, amounting to approximately $9 billion.
Bitcoin Price Surge Sparks Discontent Among Customers
According to Reuters, despite the company’s efforts, some FTX customers have expressed dissatisfaction, arguing that they are being “shortchanged” by using cryptocurrency prices from November 2022 as a basis for repayment.
For instance, as of this writing, Bitcoin’s price has significantly increased from $16,872 in November 2022 to around $43,600. Despite these complaints, US Bankruptcy Judge John Dorsey ruled favor of FTX, approving the use of 2022 prices for repayment.
Judge Dorsey explained that US bankruptcy law mandates debts to be repaid based on their value at the time of the company’s bankruptcy filing. Judge Dorsey stated:
I have no wiggle room on that. The Bankruptcy Code says what it says, and I am obligated to follow it.
Overall, the court’s decision sets the stage for FTX to proceed with its asset liquidation plan and fulfill its obligation to repay customers.
However, the controversy surrounding using 2022 prices may continue to generate scrutiny and further legal challenges as the repayment process unfolds.
Featured image from Shutterstock, chart from TradingView.com