A final postscript to FTX’s collapse
As Sam Bankman-Fried faces 25 years in prison, FTX’s creditors could surprisingly recover all their money.
The legal wrangling over FTX is winding down, but as a public relations disaster, the crypto industry will have to deal with its fallout for years to come.
We saw a significant milestone Thursday as Sam Bankman-Fried, the defunct exchange’s ex-CEO and founder, was sentenced to 25 years in prison by a federal judge in New York for defrauding FTX’s investors. Except for a possible appeal in which he may try to get that punishment shortened, the criminal component of the FTX debacle is now effectively over.
Intriguingly (and with much less press coverage), the civil bankruptcy case in which creditors are trying to recoup money from FTX in a Delaware courtroom has taken a surprising turn as well: The FTX estate’s lawyers say they expect to be able to repay all the creditors in full, in U.S. dollar terms.
That qualifier is itself a source of contention as some creditors claim they are due an even bigger payout, considering the crypto market’s torrid rally in recent months.
For the 99-plus percent of us who aren’t litigants involved in the case, though, the bigger point may be that if FTX ends up paying anything even remotely resembling parity, and if they do it in a reasonable timeframe, that would be a miracle by the standards of past financial debacles on Wall Street.
By comparison, a federally supervised compensation fund set up for Bernie Madoff’s victims announced in December — more than 15 years after Madoff’s stock-market scam was revealed — that it had finally reached a 90% payout rate for victim’s losses.
In many other Wall Street fraud cases, victims end up recovering just pennies on the dollar. By the time regulators discover improprieties, clients’ money has effectively been lost forever via actual market losses that weren’t properly disclosed by the people managing their money.
At least by those sorry standards, the FTX creditors can’t help but come out well here.
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