FTX and CFTC agree to $12.7 billion settlement following months of negotiations

Bankrupt crypto exchange FTX and the U.S. Commodity Futures Trading Commission have agreed to a $12.7 billion settlement, pending approval from a Delaware judge.

The two have been negotiating over the past few months, according to a court document filed on July 12 in the U.S. Bankruptcy Court for the District of Delaware.

"The Proposed Settlement is an integral and valuable component of the Debtors’ proposed chapter 11 reorganization plan," according to the filing. "It resolves ongoing litigation and disputes with one of the largest creditors of the Debtors, avoids the cost and delay of further litigation, and mitigates a significant risk of diminution of the assets available for distribution to creditors."

The CFTC lodged a complaint in 2022 against the exchange, former FTX CEO Sam Bankman-Fried and affiliated Alameda with fraud and said their actions caused customers to lose $8 billion. The agency initially pushed for a $52.2 billion claim, according to the proposed settlement.

As part of the settlement, the CFTC has agreed to receive nothing as long as FTX complies with its reorganization plan. Therefore, FTX will pay up to $12.7 billion to creditors, subject to available funds.

"In this bespoke settlement, the CFTC foregoes its own recovery against FTX in order to supplement the recoveries of customers and cryptocurrency lenders beyond the levels typical in chapter 11 cases," said Andy Dietderich, partner at Sullivan Cromwell and lead counsel for the FTX Debtors, in an emailed statement.

The settlement agreement is divided into $8.7 billion in restitution and $4 billion in disgorgement. The $4 billion in disgorgement would be "subordinated to the prior payment of claims of all creditors," according to the filing.

FTX said in the court filing that the CFTC is "the most significant single creditor" in Chapter 11 bankruptcy cases.

"Given the conduct, guilty pleas and convictions of the FTX Insiders, the Debtors face very substantial potential liability to the CFTC," they said in the filing.

A hearing on the settlement motion will be on Aug. 6.

FTX filed for bankruptcy in late 2022. The debtors revealed their reorganization plan in May and said they planned to give 98% of its creditors at least 118% of allowed claims. According to the plan, creditors with allowed claims below $50,000 will be eligible for the 118% compensation upon court approval.

Some, including those representing FTX's largest creditor group, have opposed the plan and said the estate should pay out cryptocurrencies in kind rather than the dollar value when the exchange filed for bankruptcy. Votes on the plan are due by Aug. 16.

Bankman-Fried was found guilty in November 2023 of seven criminal counts, including two counts each of wire fraud and conspiracy to commit wire fraud, and was sentenced to nearly 25 years in prison. The U.S. Securities and Exchange Commission has also charged Bankman-Fried with fraud.