New York judge nods $12.7B settlement between FTX, Alameda and CFTC

A New York judge has handed down final approval for defunct crypto exchange FTX and its sister trading firm Alameda Research to pay back $12.7 billion to FTX creditors as part of a settlement with the United States Commodity Futures Trading Commission (CFTC).

In an Aug. 7 filing, United States District Judge Peter Castel officially approved the $12.7 billion consent order, which FTX and Alameda entered into to resolve a 20-month-long lawsuit from the CFTC.

FTX and Alameda first agreed to the settlement on July 12, but the action was still pending final court approval — which is what District Judge Castel handed down on Aug. 7.

Notably, the commodities regulator did not seek a civil monetary penalty meaning the entire $12.7 billion sum will be used to pay back FTX creditors directly.

FTX and Alameda agreed to pay back $8.7 billion to investors who were defrauded by its founder Sam Bankman-Fried. They were ordered to disgorge an additional $4 billion as well.

The order will also permanently ban FTX and Alameda Research from “cheating or defrauding” commodity customers, entering into transactions involving “digital asset commodities,” and ban them from ever buying or selling digital asset commodities on behalf of third parties.

The commodities regulator was named by FTX — which was taken over by bankruptcy expert John Ray III — as the “most significant single creditor" in its ongoing bankruptcy case.

The CFTC sued FTX, its former CEO Sam Bankman-Fried, and Alameda Research in December 2022 — claiming the firm committed fraud and made misrepresentations by marketing itself as a “digital commodity asset platform.”

The most current version of the proposed FTX reorganization plan will see a 118% return for 98% of its creditors — those with claims under $50,000 — based on the US dollar value of asset prices at the time of FTX’s bankruptcy filing in November 2022.

However, many FTX creditors expressed a preference to receive a cryptocurrency payout in-kind, which would factor in the crypto market's roughly 150% increase in total market cap since FTX filed for Chapter 11 protection.

Creditors are currently voting on how they would prefer to be paid out. They have until Aug. 16 to lodge their requests, and US Bankruptcy Court Judge John Dorsey will make a final decision on Oct. 7.