by Jude Ayua

FTX Trading Ltd (FTX) and its affiliated debtors (the FTX Debtors) announced the Court’s approval of its Chapter 11 Plan of Reorganization (the Plan) on 16 December 2024. The Plan is for the payment of FTX’s customers who lost funds from its collapse in 2022. The Plan became effective on 3 January 2025 (Effective Date), with a set initial distribution date for holders of allowed claims within 60 days of the Effective Date. 

FTX noted that participation in the Plan is subject to the following conditions: submit know-your-customer (KYC), submit the required tax forms, and onboard with its distribution agents, BitGo or Kraken.

FTX confirmed the distribution in an announcement on X on 3 January. 

The FTX Debtors Plan of Reorganization is effective today… Today is also the initial distribution record date for holders of allowed claims in the Plan’s Convenience Classes. Separate record and payment dates for other classes of claims will be announced later.

The announcement also emphasized the eligibility for receiving a distribution that it stated in its announcement of December 2024. Customers and other creditors can find more information on the FTX Debtors’ Customer Portal page: claims.ftx.com.

Read also: Creditor Repayment Speculation Sparks FTT Frenzy: Token’s Price Reaction and Market Sentiment.

FTX collapse

Since its founding in 2019 by Sam Bankman-Fried, FTX grew rapidly to become one of the leading cryptocurrency exchanges. The platform is closely linked to Bankman-Fried’s trading firm, Alameda Research. There were initial concerns about the two entities’ interconnected operations, particularly Alameda’s exemption from FTX’s auto-liquidation protocols. 

In 2022, Alameda experienced significant losses and Sam Bankman-Fried used funds from FTX to bail Alameda, in violation of FTX’s terms of service. A subsequent report revealed Alameda’s substantial FTT holdings, causing bulk withdrawals by customers. The withdrawals exposed FTX to a $8 billion deficit and forced it into bankruptcy in November 2022.

FTX’s collapse had a substantial impact on its customers. The exchange’s bankruptcy triggered regulatory investigations, asset freezes, and also affected the cryptocurrency market downturn, with bitcoin plummeting to its lowest value in two years. 

Following legal actions against FTX and Alameda, several senior executives pleaded guilty to fraud by late 2022, later testifying against Bankman-Fried. In November 2023, Bankman-Fried was convicted of defrauding customers and lenders. The FTX case was one of the largest financial fraud cases in U.S history.

Read also: FTX Collapse: Does FTX Token (FTT) have a future?

Funds recovery and distribution efforts

After the collapse, FTX and 101 affiliated debtors each filed a bankruptcy petition in mid-November 2022, seeking relief under the U.S Bankruptcy Code in the Bankruptcy Court for the District of Delaware. On 13 February 2023, the Court dismissed the cases of 21 of the debtors.

After the Court’s dismissal of FTX’s bankruptcy petition and subsequently Bankman-Fried’s conviction, the FTX Debtors continued efforts to recover funds and pay affected customers and creditors. In May 2024, the Debtors filed their Plan and the Court approved it on 26 June 2024, confirming it further on 8 October 2024.

In FTX’s December 2024 announcement, John J. Ray III, Chief Executive Officer of the FTX Debtors, noted:

For the past two years, our team of professionals have meticulously and efficiently worked to recover billions of dollars to reach this point. The Plan becoming effective in January 2025 and the start of distributions are reflections of the outstanding success of the recovery efforts.

Assuring customers and creditors of the Debtors’ readiness to begin the distribution of recoveries, Ray encouraged them to comply with the necessary requirements to begin receiving distributions in due time.

To facilitate the speedy implementation of the Plan, the FTX Debtors partnered with two companies, BitGo and Kraken, to assist in distributing recoveries to both retail and institutional customers and creditors in supported jurisdictions and in compliance with the Plan.

Read also: Is the bankrupt crypto exchange FTX going to relaunch?

Creditors beware of scams

FTX informed customers and creditors in its January 3 announcement to beware of possible scams. “The FTX Debtors also remind customers to please remain aware of phishing emails that may look like they are from FTX Debtors and scam sites from channels that may appear to look like the FTX Debtors’ Customer Portal,” FTX stated.

The exchange had instructed customers and creditors in its earlier announcement: “If additional distribution service providers are onboarded, announcements will be made on the FTX Debtors’ Customer Portal and the FTX Debtors’ official X.com account.”

Crypto frauds, compliance, and consumer protection

There are several cases of frauds in the cryptocurrency industry, including individual and institutional cases. In 2024 alone, losses from crypto-related scams and hacks neared $5 billion globally. Crypto scams accounted for approximately $2.3 billion in losses. Notable incidents included the WazirX hack in July 2024, resulting in a loss of about $234.9 million, attributed to the North Korean Lazarus Group. Losses from crypto hacks, on the other hand, reached around $2.2 billion, marking a 21% increase from 2023. 

The records above point to the need for enforcing compliance and ensuring consumer protection in the cryptocurrency industry. Recovery and refund efforts by entities responsible to customers who fall victim to crypto-related scams, such as the FTX Debtors showcase, are necessary to regain public trust in the industry.

Read also: Patricia recommits to refunding affected users over cyber breach.