The dispute between FTX and the CFTC is finally resolved: What was it worth?

Failed exchange FTX settles with Commodity Futures Trading Commission.

As part of the settlement, the company agreed to pay the CFTC a $12.7 billion fine, according to court documents. The agreement also calls for $4 billion in restitution and $8.7 billion in damages, subject to court approval.

The CFTC did not seek civil penalties against FTX. According to the regulator’s representatives, given the guilty pleas and convictions of FTX insiders, borrowers faced very significant potential liability to the institution.

The court will discuss the settlement agreement on August 6. If approved, the company will be able to begin the next phase of restructuring and debt repayment.

What is known about the CFTC’s lawsuit against FTX?

The CFTC filed a lawsuit against FTX and its co-founder Sam Bankman-Fried in December 2022. The agency accused the defendants of violating the Commodity Exchange Act and misappropriating investor funds.

The complaint alleges that Bankman-Fried instructed FTX executives to develop a scheme that would allow his other company, Alameda Research, to use the cryptocurrency exchange as a loan.

IRS seeks $24 billion

In June, FTX settled its IRS lawsuit. The department is expected to receive at best $885 million from the bankrupt FTX, instead of the $24 billion initially required. That amount includes a $200 million priority payment that the exchange must pay within 60 days of its proposed restructuring plan going into effect.

If funds remain for that purpose, the IRS will receive the remaining $685 million after FTX has completed reimbursement to customers and creditors. The bankruptcy court must approve the settlement agreement.

In contesting the $24 billion claim, exchange representatives acknowledged the possibility of significant tax liabilities. However, they noted that their repayment could significantly impact the recovery of individual investors.

Another FTX Compensation Plan

In early May, FTX proposed a new compensation plan under which 98% of creditors would receive at least 118% of their claims within 60 days of court approval, with the remaining platform customers receiving 100% refunds.

According to FTX estimates, the total compensation cost will be between $14.5 billion and $16.3 billion. This amount includes the assets controlled by the exchange itself and its liquidators.

The company raised the funds by selling cryptocurrencies, the majority of which were investments from Alameda or FTX Ventures. The offer comes shortly after FTX conducted a market-low sale of Solana (SOL). The company sold 1.8 million SOL at a market price of around $100.

Debts are paid and leaders are punished

While FTX is scheduling payouts, the courts continue to deal out justice to employees of the collapsed site. In late May, former cryptocurrency exchange chief executive Ryan Salame was sentenced to seven and a half years in prison. The defense insisted on an 18-month sentence, citing his cooperation with authorities and the personal losses he suffered as a result of FTX’s collapse. He must also pay a $11 million fine for his role in financial crimes.

Salame played a key role in FTX’s growth, overseeing its operations in the Bahamas and spending heavily. His lavish lifestyle included expensive cars, private jets and restaurant investments.

Meanwhile, FTX founder Sam Bankman-Fried is serving a 25-year sentence he received at the end of March this year. He was charged with fraud, perjury and interference in the long-running trial.

Let’s recall the past: How did FTX go bankrupt?

In early November 2022, CoinDesk obtained access to Alameda’s balance sheet, revealing that the exchange’s token, FTT, made up the majority of Alameda’s assets. Alameda also had $6.1 billion in FTT on its balance sheet, at least $1 billion more than the token’s circulating supply. Alameda’s other significant assets included SOL tokens — $863 million locked and $292 million unlocked. This meant that the ties between Alameda and FTX were much more robust than Bankman-Fried claimed.

A few days after CoinDesk published, Binance founder Changpeng Zhao wrote that his exchange would sell its FTT, likening the scenario to the collapse of TerraUSD. The FTT price fell sharply after that. As a result, the cost of the FTT token fell by 83%, and SBF’s net worth dropped to $991 million.

The FTT price drop caused liquidity issues for Alameda and FTX. Panic also affected other digital assets.

Zhao wrote that Binance planned to acquire FTX and help the entire market eliminate liquidity issues. However, seeing that FTX’s balance needed to be regulated, Binance backed out of the purchase.

1) I’m sorry. That’s the biggest thing.

I made a mistake and I should have done better.

— SBF (@SBF_FTX) November 10, 2022

On November 11, 2022, FTX, Alameda Research, and 130 other affiliated firms filed for Chapter 11 bankruptcy. According to Alameda Research’s filing, it had more than 100,000 creditors at the time of the bankruptcy. The company’s assets and liabilities were estimated to be between $10 billion and $50 billion.

Many companies that FTX and Alameda Research have invested in have suffered disastrous business outcomes, including the Solana ecosystem and the BlockFi platform.