FTX Reaches Tentative Deal with CFTC

FTX has agreed to pay the Commodity Futures Trading Commission (CFTC) $4 billion in disgorgement and $8.7 billion in restitution, according to a filing on July 12. The settlement amount will be reduced by credits from other bankruptcy payments.

This means that FTX and associated debtors will receive dollar-for-dollar credit toward the restitution amount based on the amount they distribute in FTX.com and FTX.US customer claims and Alameda lender claims in the Chapter 11 cases.

Dollar-for-Dollar Credit

The debtors will also receive dollar-for-dollar credit for the disgorgement amount based on the amount they distribute toward the CFTC's stipulated claim in the Chapter 11 cases.

This implies that FTX would only need to pay the stipulated disgorgement claim as it is set out in its eligible reorganization plan and within the limits of its available funds. Under the agreement, the CFTC will not seek a civil monetary penalty and will have no other claims against the debtors in the ongoing Chapter 11 cases.

Final Approval Pending

The proposed settlement is not final yet. The CFTC's Enforcement Division recommends the agreement for consideration. The division authorized FTX to file its motion based on the assumption that the regulator will approve the proposal before an August 6 hearing.

Furthermore, the proposed settlement will only become final and take effect after FTX's eligible reorganization plan is confirmed.

Background and Implications

FTX noted that the CFTC previously sought $52.2 billion in restitution, disgorgement, and civil monetary penalties related to civil enforcement actions against FTX, Alameda Research, and former executives.

FTX called the CFTC its most significant creditor, noting it has "very substantial potential liability" to the CFTC due to former executives' actions and their convictions or guilty pleas.

FTX believes the settlement with the CFTC should resolve ongoing litigation and disputes, save legal costs, and preserve the value of assets owed to creditors.

Broader Bankruptcy Case

FTX's bankruptcy case is progressing more broadly. In May, FTX stated it would provide creditors over 100% of the amount owed.

However, some creditors have objected to the plan because it will distribute cash rather than in-kind crypto distributions, possibly introducing tax complications. The final outcome of these negotiations will have significant implications for FTX's customers and the future of the company.

"The proposed settlement could resolve ongoing litigation and disputes, save legal costs, and preserve the value of assets owed to creditors."