Bankman-Fried's bankruptcy case is a huge hit for depositors

Bankman-Fried's bankruptcy case is a huge hit for depositors

As the world awaits the trial of Sam Bankman-Fried, DL News took a closer look at FTX's bankruptcy case.

The estate is suing Bankman-Fried's mom and dad for millions they allegedly misappropriated.

It paints a picture of two opportunistic Svengalis, closely advising the college grads running FTX, while treating it as their piggy bank - funding luxury homes, lavish travel, and campaign donations.

But behind the juicy details and widespread media frenzy are FTX's depositors.

I'm not talking about big companies like BlackRock or Sequoia - somehow, I think they'll be fine - but rather the million-odd ordinary people screwed out of $8 billion.

They were not gullible fools. They saw the fawning media coverage, celebrity endorsements, appearances at prestigious conferences, and the disapproving of professional dress codes that appeared to be an iconoclastic boy genius.

They wanted in on what the cognoscenti thought was a good thing.

And now the creditors of FTX, including those of Celsius Network, Voyager Digital, Gemini Trust, BlockFi and so on, can only wait for the decisions of courts or restructuring teams.

Bankruptcy under Chapter 11 of the US tax code is never smooth, exactly, but it is a path well worn with precedent and clear laws facilitating the orderly winding down or restructuring of a business.

Debtors can keep their companies in their possession, protected against asset grabs from creditors. Creditors may have to wait to receive their debt, but they have a better chance of reclaiming it.

Cryptocurrencies are difficult to value because they're hard to invest in. Nobody is quite sure whether to treat them as commodities or securities. And it's not always clear who owns crypto - the failed lender/exchange or the user.

If a depositor can get their crypto back, all these factors have implications for a depositor's future.

Crypto creditors are often viewed as unsecured, which means they are at the back of the queue when the bankruptcy estate finally distributes assets.

And distributions in unsecured claims are often pennies on the dollar.

In January, a federal judge in New York ruled that Celsius, instead of some of its depositors, owned most of the crypto on its platform, classifying the depositors as unsecured creditors.

Celsius creditors recently voted to approve a restructuring plan that would see a new company formed. Investors will receive $2 billion worth of Bitcoin and ether, plus equity in the new company, according to the company's website.

FTX has collected $7.3 billion in assets. A Delaware court ruled yesterday that customers can claim these assets from the restructuring plan.

So these are happy endings.

It's worth remembering that for many people who trust Bankman-Fried and another potentially legit founder, Celsius CEO Alex Mashinsky, it's too little too late.

Have you been burned in a crypto chapter 11 case? What do you think about it? How crypto lawyers plan to counterattack the SEC after Grayscale and Ripple court wins?

The SEC has filed a civil suit against crypto industry players, both large and small. But lawyers for associations like the DeFi Education Fund told DL News they are planning a counteroffensive. Obscure administrative laws and obstacles to enforcement actions.

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