As Sam Bankman-Fried prepares to face sentencing next month for his criminal fraud conviction tied to the epic collapse of FTX in 2022, former customers of the crypto exchange have reasons to believe they could recoup their money.
Bankman-Fried, who could spend the rest of his life behind bars, was found guilty in November on seven criminal counts after roughly $10 billion in customer funds from his company went missing.
Some of that money went to pay for Bankman-Fried’s lavish lifestyle, but much of it went towards other investments that have, of late, appreciated dramatically in value.
Lawyers representing the bankruptcy estate of FTX told a judge in Delaware last week that they expect to fully repay customers and creditors with legitimate claims.
Bankruptcy attorney Andrew Dietderich, who works with FTX’s new leadership team, said “there is still a great amount of work and risk” ahead in getting all the money back to clients, but that the team has a “strategy to achieve it.”
It’s a welcomed development for the multitude of customers (reportedly as many as a million) who, collectively, suffered losses totaling billions of dollars in FTX’s collapse 15 months ago, when the cryptocurrency exchange plummeted into bankruptcy within days.
Considering the lightly regulated and unsecured environment of FTX, as well as the broader crypto industry, these clients were confronted with the stark possibility that the majority of their funds had vanished.
Numerous hedge funds and lenders that failed during the crypto winter of 2022 experienced near-total losses. Bankman-Fried never held the belief that his company’s circumstances were as dire as portrayed.
Despite regulators and federal prosecutors discovering evidence indicating that the 31-year-old entrepreneur and his top lieutenants had been embezzling billions of dollars from customer wallets for years, Bankman-Fried remained adamant that all the money was still somehow accessible.
In a Substack post dated Jan. 12, 2023, Bankman-Fried emphasized, “FTX US remains fully solvent,” during his period of house arrest at his parent’s residence in Palo Alto, California. He affirmed that the exchange “should be able to return all customers’ funds.”
In some respects, his narrative seems to be coming true.
For months, FTX’s recently appointed CEO, John Ray III, and his team of restructuring advisors have been recovering funds, luxury assets, and cryptocurrency, while also locating missing resources.
They’ve already amassed more than $7 billion, not including assets such as $26 million in gifts and property that were given to Bankman-Fried’s parents or the $700 million transferred to K5 Global and its founder Michael Kives, who used FTX funds to invest in companies like SpaceX.
Some of these investments have experienced a significant increase in worth. FTX had been in talks with potential buyers regarding a potential company overhaul, but those efforts were abandoned last month.
Braden Perry, formerly a senior trial lawyer for the Commodity Futures Trading Commission, FTX’s sole official U.S. regulator, conveyed to CNBC that the determination to reimburse users entirely occurred after “the abandonment of efforts to restart the FTX crypto exchange,” opting instead for “a focus on liquidating assets to make customers whole.”
Ray didn’t anticipate a significant market rebound. At the time of his remarks, crypto was stuck in a bear market, with bitcoin trading at approximately $16,000. Now, it’s risen above $47,000.
In September, the bankruptcy team issued a status report revealing that FTX possessed $3.4 billion worth of digital assets, with over $1.1 billion stemming from its Solana investment.
Solana falls under the umbrella of so-called “Sam coins,” a category that includes Serum, a token established and endorsed by FTX and its affiliated hedge fund, Alameda Research.
Following the resolution of FTX’s bankruptcy situation, Solana experienced a significant surge in its price, which persisted after the September report. Since the conclusion of that month, it has quintupled in value.
Amidst this, FTX’s bitcoin stash, previously valued at $560 million in the September report, now exceeds $1 billion.
Bankman-Fried’s investments extended beyond the realm of crypto. He utilized client funds to support ventures such as Anthropic, an artificial intelligence enterprise established by former OpenAI staff.
FTX injected $500 million into Anthropic in 2021, predating the surge in generative AI. Anthropic achieved a valuation of $18 billion by December 2023, translating FTX’s approximate 8% interest into roughly $1.4 billion.
During Bankman-Fried’s legal proceedings in New York, Judge Lewis Kaplan rebuffed the defense’s plea to characterize FTX’s investment in Anthropic as a prudent move.
As per a court submission this month, the bankruptcy estate of FTX has been exploring avenues to offload its stake in Anthropic.
