FTX, one of the largest cryptocurrency exchanges, chose to follow the path of liquidation, opting not to resume operations. In a recent development, the company announced that it will proceed with refunds to its customers, based on Bitcoin values from November 2022, when it was trading below US$18,000. This decision comes in response to the bankruptcy process under the jurisdiction of the United States, where the calculation of refunds must align with the value of assets at the time of filing for bankruptcy.
Many customers expressed dissatisfaction with this measure, feeling harmed by the evaluation. However, US Bankruptcy Judge John Dorsey reiterated that bankruptcy law does not provide flexibility in this regard, stating that refunds must be calculated based on the value of assets on the date of bankruptcy filing. “The Bankruptcy Code is clear and I must adhere to what it states,” Dorsey said.
FTX, for its part, clarified that eligibility for immediate refunds will not apply to all customers, highlighting the importance of meticulous investigation to determine the legitimacy of claims. The direction taken by FTX reflects a cautious and regulated approach, aiming to ensure that reimbursements are fair and in accordance with legal guidelines.
US bankruptcy law determines repayment criteria, with no room for adjustment
John J. Ray III, CEO of FTX, had previously expressed hope in attracting partners to revive the exchange’s operations. However, further examination of the company’s finances revealed a substantial capital deficit, leading to the decision to proceed with liquidation. Acquisitions made under the management of former CEO Sam Bankman-Fried depreciated considerably, making it difficult to attract investors.
Bankman-Fried faces fraud charges and a potential long prison sentence, with his trial scheduled for the end of March. Despite these challenges, FTX managed to recover over $7 billion in assets. These are intended to reimburse customers, and has established agreements with regulators to prioritize these payments.
The announcement of the refund plan significantly impacted the price of FTX’s native token, FTT, which saw a drop of around 40% in value. FTT is currently trading below $2, marking a decline of more than 14% in the last 24 hours, according to data from CoinGecko.
This episode highlights the complexities and challenges faced by cryptocurrency platforms amid financial and regulatory crises. Thereby, highlighting the importance of legal compliance and investor protection in the cryptocurrency sector.
The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing in or trading cryptocurrencies carries a risk of financial loss.