What solution FTX offers to the conflict

Bankrupt cryptocurrency exchange FTX raised over $600 million in new technology through Robinhood shares.

The petition, filed by FTX CEO John Ray III, states that the platform is willing to pay Emergent $14 million to cover its administrative costs. In return, FTX wants the firm to drop its claims on Robinhood securities.

According to recent reports, the company aims to avoid litigation delays over the investment firm’s claims over approximately 55 million Robinhood shares and more than $600 million in cash that were seized:

The FTX Debtors worked hard to resolve other conflicts of interest to pave the way for the U.S. Department of Justice to release the Robinhood Proceeds and Seized Cash to the FTX Debtors for distribution.

The FTX deal will also resolve Emergent’s Chapter 11 bankruptcy in Antigua. The crypto exchange called the deal “another valuable piece of the puzzle” in its reorganization plan to maximize creditor repayment value. A court hearing on the petition is expected on Oct. 22.

Robinhood stock disputes

Emergent acquired Robinhood shares in May 2022. In November 2022, FTX filed for bankruptcy, and ownership of the shares became the subject of a dispute between various parties, including FTX, Bankman-Fried, and BlockFi, a bankrupt cryptocurrency lender.

BlockFi also claimed the shares as collateral for a loan to other Bankman-Fried businesses. The case is further complicated by criminal charges filed against Bankman-Fried that include allegations of fraud and misuse of customer funds.

The U.S. Department of Justice seized the stocks and cash and liquidated Robinhood securities. Robinhood later bought back the shares for approximately $606 million.

What does the decision mean for FTX?

FTX, now led by CEO John Ray III, has been aggressively pursuing asset recovery for creditors. Resolving the Robinhood stock dispute was a key part of that effort. FTX secured the ability to liquidate the stock and potentially distribute the proceeds to its creditors in a deal with Emergent.

The potential recovery of $600 million in Robinhood stock is a significant win for FTX creditors who have been trying to recoup billions of dollars in losses since the stock market crash. While the exact terms of the agreement between FTX and Emergent have not been fully disclosed, the deal would likely pave the way for a significant payout for those harmed by FTX’s collapse.

The development also signals a broader effort by FTX’s management to untangle its tangled web of assets and liabilities. The company has been embroiled in several legal battles to reclaim funds lost due to mismanagement, fraudulent practices, and risky investments.

What’s happening on FTX right now: Latest updates

According to the latest figures, the bankrupt exchange’s management announced that it has received overwhelming support from creditors for an updated reorganization plan. The results are expected to pass the threshold required by the Bankruptcy Code for approval by the Delaware District Court. FTX will submit the final figures to the court before a hearing on October 7.

However, the U.S. Securities and Exchange Commission notified the U.S. Bankruptcy Court in Delaware in late August that closed cryptocurrency exchange FTX has the right to object to payments made to its creditors in stablecoins.

According to the regulator, such payments are not technically illegal, but it “reserves the right” to challenge such transactions. The SEC also noted that the current repayment plan does not designate an intermediary responsible for distributing funds to creditors.

The SEC has not expressed an opinion on the legality of the transactions described in the Plan under the federal securities laws and reserves the right to challenge transactions involving crypto assets.

However, the crypto community criticized the Commission’s statement. Galaxy Digital’s head of research Alex Thorn called another attempt to equate stablecoins with securities “absurd” given the previously dismissed case against Paxos, the issuer of Binance USD (BUSD).

Despite lifting sanctions against Paxos and forfeiting MTDs on BUSD against Binance in July, the SEC is still reserving the right to claim dollar-backed stablecoins are “crypto asset securities.”

This is the height of jurisdictional overreach.

If you… that’s pretty ridiculous. pic.twitter.com/laT6vY5i6T

— Alex Thorn (@intangiblecoins) September 1, 2024

Coinbase chief legal officer Paul Grewal said the SEC had made “threats and slander,” adding that the market and investors “deserve much better.”

The SEC did not explicitly state that such an action would be illegal, writing: “The SEC expresses no opinion as to the legality of the SEC’s conduct.
The transactions outlined in the Plan are “conformant to federal securities laws,” but the agency notes that it “reserves the right to object to the transactions… https://t.co/zAMqY7mTcd

— paulgrewal.eth (@iampaulgrewal) September 1, 2024

So the situation that has been dragging on for years regarding payment to creditors has been thrown into uncertainty due to the possible displeasure of the SEC.