The failed crypto exchange FTX recently announced in a Delaware court hearing that it will abandon efforts to restart its crypto platform. Instead, it will liquidate all assets to refund customers, according to an FTX lawyer. FTX had negotiated with potential bidders and investors for months to secure funding to rebuild the exchange. However, parties were only willing to provide enough money to do so.
During the hearing, FTX lawyer James Dietderich stressed that returning funds to customers is a goal, not a guarantee. He acknowledged the considerable work and risks involved. But he expressed confidence they can achieve this objective, stating: I want the court and stakeholders to see this as an objective, not a guarantee. Much work and risk remain between us and the result. But the goal is reachable, and we have a strategy to achieve it.
The failed talks revealed that FTX had major underlying flaws. Founder Sam Bankman-Fried needed more technology and administration to sustain the business long-term. Dietderich stated this. Additionally, Bankman-Fried was convicted of fraud related to his involvement with FTX.
He said the costs and risks of transforming what Bankman-Fried left behind into a functioning exchange were too high. So FTX will now focus on liquidating assets to repay customers whose cryptocurrency deposits were locked when the exchange filed for bankruptcy in Nov 2022.
FTX Recovers $7B, Controversy over 2022 Crypto Prices
Dietderich told the court FTX had managed to recover over $7 billion in assets to fulfil customer repayments. Agreements were also reached with various government regulators. They agreed to postpone their claims until customers are fully repaid, amounting to around $9 billion.
Some FTX customers have expressed dissatisfaction, arguing they are being shortchanged by using cryptocurrency prices from November 2022 as the basis for repayment. Bitcoin’s price has significantly increased since then.
Despite complaints, Judge John Dorsey approved using 2022 prices for repayment. He explained bankruptcy law requires debts to be repaid based on their value at the time of bankruptcy filing.
Overall, the decision allows the exchange to liquidate assets and fulfil its obligation to repay customers. However, controversy over 2022 prices may generate more scrutiny and legal challenges during this process.
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