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FTX Estate Faces $3 To $5 Billion In US Government Claims

FTX Estate Faces $3 To $5 Billion In US Government Claims

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Fallen cryptocurrency exchange FTX has stated that it expects the United States government to reduce its claims to between $3 billion and $5 billion. 

FTX Customers could see further funds based on the increase in the price of cryptocurrencies since the petition date. 

US Govt Claims Between $3 And $5 Billion 

According to a court filing on Wednesday, the United States government’s claims against bankrupt cryptocurrency exchange FTX are expected to be between $3 and $5 billion. The filing in the United States District Court for the Southern District of New York stated that the total amount of government tax claims remains uncertain. However, once all government and tax claims are cleared, debtors can use the remaining proceeds to make distributions among shareholders. 

Debtors have proposed that 100% of the SDNY Remission Proceeds, the funds or assets returned to the FTX Estate by the US Attorney’s Office for the Southern District of New York and other government authorities, be used for distribution to customers and Alameda lenders. This includes a settlement with BlockFi. Once administrative expenses and non-governmental claims are settled, 25% of the distributable value will be made available to pay claims for US federal income taxes, while the remainder will be used to pay claims by the Commodity Futures Trading Commission and other government authorities. 

The government claims will be put in a Civil Remission Fund, which will be used to pay FTX customers and creditors whose holdings increased in value between the petition date and the date immediately before the Chapter 11 Disclosure Statement. 

Unpaid Taxes 

In December, the United States Internal Revenue Service stated that FTX owed over $44 billion in unpaid taxes. This figure was later adjusted to $24 billion, although even the revised figure is unlikely to be fully recovered. A court filing in September 2023 revealed that the FTX Estate had managed to claw back $7 billion in assets. This figure has likely registered a significant increase thanks to the crypto bull market. 

Bankman-Fried’s False And Reckless Claim 

Wednesday also saw current FTX CEO John J. Ray dispute FTX founder Sam Bankman-Fried’s claims that FTX’s catastrophic collapse did no harm to customers, due to which he should get a lighter prison sentence. According to FTX, government claims between $3 billion and $5 billion would leave little or no money for shareholders. Ray stated that this contradicts the “reckless and false” claim by FTX founder Sam Bankman-Fried.

Ray stated in court filings that Bankman-Fried had significantly distorted FTX’s recent statements regarding its ability to repay customers. Ray stated, 

“All of these statements are both reckless and false. Even the best conceivable outcome in the Chapter 11 proceeding will not yield a true, full economic recovery by all creditors and non-insider equity investors as if the fraud never happened.”

FTX had estimated that it would have around $13.7 billion in assets to repay $31.4 billion in legitimate claims. This includes $9.2 billion in customer claims and $17 billion in claims by the Commodity Futures Trading Commission and the Internal Revenue Service. FTX stated back in January that it expected to pay customers in full. However, that assertion came with a major caveat: the exchange will value customer claims based on prices prevailing in November 2022, stating that customers will receive no benefit from a significant price rise since that date.

Ray stated that many customers are extremely unhappy with the proposed repayment. FTX is working towards a settlement with the government that would allow the firm to repay its customers before the government. In recent crypto bankruptcies, such as BlockFi and Genesis Global, the government agreed to prioritize customer repayments.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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