FTX Estate Braces for $3 to $5 Billion Showdown with US Government

Cryptocurrency exchange FTX, which has faced a significant downfall, anticipates a reduction in the United States government’s claims against it to a range between $3 billion and $5 billion. This revelation was made through a court filing on Wednesday in the United States District Court for the Southern District of New York. The total amount of government tax claims remains uncertain, but once resolved, any remaining proceeds will be used for distributions among shareholders.

FTX plans to allocate 100% of the SDNY Remission Proceeds, funds, or assets returned to the FTX Estate by the US Attorney’s Office for the Southern District of New York and other government authorities, towards distribution to FTX.com customers and Alameda lenders, including settlement with BlockFi. After covering administrative expenses and non-governmental claims, 25% of the remaining value will be allocated for US federal income tax claims, with the rest earmarked for claims by the Commodity Futures Trading Commission and other government authorities.

Government claims will be pooled into a Civil Remission Fund, from which FTX customers and creditors whose holdings increased in value between the petition date and the date before the Chapter 11 Disclosure Statement will be compensated.

The situation is further complicated as current FTX CEO John J. Ray disputes claims made by FTX founder Sam Bankman-Fried, who argued that FTX’s collapse caused no harm to customers, seeking leniency in sentencing. Ray contends that government claims between $3 billion and $5 billion would leave minimal or no funds for shareholders, contradicting Bankman-Fried’s assertions.

Ray emphasized that Bankman-Fried distorted FTX’s ability to repay customers, terming the statements as “reckless and false.” FTX had previously estimated $13.7 billion in assets to repay $31.4 billion in legitimate claims, including $9.2 billion in customer claims and $17 billion in claims by regulatory bodies. However, customers are dissatisfied with the proposed repayment, prompting FTX to pursue a settlement with the government to prioritize customer repayments, a strategy employed in recent crypto bankruptcies.

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