The FTX bankruptcy estate plans to set up a fund to repay the exchange’s preferred shareholders with property and proceeds recovered by the U.S. Department of Justice (DOJ) in its legal action against FTX insiders.
According to a Sept. 28 filing, the agreement will award certain shareholders with the lesser of $230 million or 18% of all proceeds from government forfeiture actions.
Some FTX creditors took issue with the agreement, which was executed on Aug. 28 — almost two weeks after the deadline for creditors to vote on the estate’s reorganization plan — and was revealed only last week, on the last day allowed to file the amended plan.
“The Debtors are not seeking Court approval of the Preferred Shareholder Agreement at this time, and it is being provided for informational purposes only,” said the FTX estate.
Earlier this year, the FTX bankruptcy filed a reorganization plan that would see 98% of creditors receive 118% of their allowed claims in cash.
However, this is based on the value of assets at the time of bankruptcy filing in November 2022, not current crypto values which have appreciated significantly since then. Some creditors argue this plan still leaves them at a disadvantage compared to what their crypto holdings would be worth today.
Sunil Kavuri, self-described FTX creditor activist, shared the last-minute addition to the plan on X, noting that creditors are getting around 10% to 25% of the value of their crypto back under the terms of the plan. One frustrated user responded to Kavuri’s post stating that he felt “scammed twice,” while another shared his disgust that the FTX estate would “sneak this into the plan so late.”
In general, preferred shareholders are second-last in line as per the priority of claims in bankruptcy cases, while secured creditors, administrative expenses and unsecured claims should take precedence.
Venture capital firms Sequoia Capital, Temasek and Third Point Ventures are among FTX’s preferred shareholders, along with high-profile investors like Kevin O’Leary and Robert Kraft.
The next hearing on FTX’s restructuring plan is scheduled for Oct. 7. However, false rumors that creditor repayments would begin on Sept. 30 began circulating on social media over the weekend, and likely contributed to the FTT token’s 60% surge over the last 24-hours.
