- Lawyers overseeing FTX’s bankruptcy have said they expect customers of the failed crypto exchange to be reimbursed in full.
- The money to pay back creditors would come from FTX’s investments, which have appreciated enormously in value since the lows following the exchange’s collapse.
- SBF is expected to face a significantly less severe sentence for his crimes if his creditors are paid back in full, however he will likely still spend several years in prison.
As Sam Bankman-Fried (SBF) awaits his sentencing hearing next month for multiple fraud convictions, things are starting to look up for his former customers.
CNBC reported that lawyers overseeing FTX’s bankruptcy estate told a Delaware judge last week that it’s likely that all FTX customers will be reimbursed fully for their losses relating to the crypto exchange’s breathtaking 2022 collapse. This financial turnaround is largely the result of a significant price appreciation in many of FTX’s remaining investments.
SBF was found guilty of all seven criminal charges against him in November 2023 and is now facing up to 115 years in prison for his role in FTX’s collapse. In total it’s estimated he lost over US$10 billion in customer funds impacting up to one million individual investors.
How Will Customers Be Paid Back?
While SBF misused some of his customers’ funds to fuel his luxurious lifestyle, much of the money actually went into investments and many of those investments have been doing pretty well lately.
FTX held large quantities of Bitcoin (BTC), Solana (SOL) and numerous other cryptocurrencies many of which are now worth five-to-ten times what they were at their lows following FTX’s collapse.
SBF also invested in several startups that have been performing strongly, such as Anthropic, an AI startup founded by ex-Open AI employees. FTX purchased an 8% stake in Anthropic for US$500 million in 2021. In 2023 the company was valued at over US$18 billion and FTX’s investment is now worth about US$1.5 billion.
According to CNBC, Andrew Dietderich, a bankruptcy attorney working with FTX’s new leadership said “there is still a great amount of work and risk” involved in ensuring customers receive everything they’re owed, but he insists that they have implemented a “strategy to achieve it.”
In terms of what customers will get back, the courts have determined that they’re entitled to the cash equivalent of the value of their crypto holdings in November 2022, which was basically the nadir of the deep crypto winter.
So, customers won’t see any of the gains made in the past few months as the crypto markets have heated up again, but it’s a much better deal than what many FTX customers had been expecting, which was essentially nothing.
Implications For SBF’s Sentencing
If everyone is paid back in full does that mean SBF won’t be facing jail time? Well, not exactly.
Even if all creditors are paid back fully, SBF’s crimes still carry a minimum term of imprisonment of 70 months, according to ex-trial lawyer at the Commodity Futures Trading Commission (CFTC) Braden Perry:
Under the federal sentencing guidelines, and even assuming no monetary loss, SBF still faces at least 70 months in prison based on his base level offense, number of victims, sophisticated means, and leadership role.
Braden Perry, Ex-Trial Lawyer with the Commodity Futures Trading Commission (CFTC)
Speaking to CNBC, Renato Mariotti, a former prosecutor in the U.S. Justice Department’s Securities and Commodities Fraud Section, said restitution is usually taken into account by the sentencing judge and usually leads to a less severe sentence, explaining “If the victim is made whole, that is a big plus for the defendant.”
So, SBF’s term of imprisonment may be far less than the 30-years-to-life many were expecting if he left creditors high and dry.
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