Donald Duck: FTX Customers Hope to Make a Quacking Good Recovery from Bankman-Fried's Fraud

Bankman Fried's Feathered Future

As Sam Bankman Fried prepares to face sentencing next month for his criminal fraud conviction tied to the epic collapse of FTX in 2022 former customers of the crypto exchange have reasons to believe they could actually recoup their money.

The Duck's Luxurious Lifestyle

Bankman Fried who could spend the rest of his life behind bars was found guilty in November on seven criminal counts after roughly $10 billion in customer funds from his company went missing. Some of that money went to pay for Bankman Fried's lavish lifestyle but much of it went towards other investments that have of late appreciated dramatically in value.

Repaying Customers: Quack or Fiction?

Lawyers representing the bankruptcy estate of FTX told a judge in Delaware last week that they expect to fully repay customers and creditors with legitimate claims. Bankruptcy attorney Andrew Dietderich who works with FTX's new leadership team said "there is still a great amount of work and risk" ahead in getting all the money back to clients but that the team has a "strategy to achieve it."

A Quacker's Welcome Development

It's a welcome development for the many thousands of customers (reportedly up to a million) who collectively lost billions of dollars in FTX's collapse 15 months ago when the crypto exchange spiraled into bankruptcy in a matter of days. Given the lightly regulated and unsecured nature of FTX — and the crypto industry at large — those clients faced the real possibility that the vast majority of their money had evaporated. Plenty of failed hedge funds and lenders lost virtually everything during the 2022 crypto winter.

Bankman Fried's Optimistic Quacks

Bankman Fried never believed his company's situation was that dire. Even as regulators and federal prosecutors unearthed evidence showing that the 31 year old entrepreneur and his top lieutenants had been pilfering billions of dollars from customer wallets for years Bankman Fried insisted that all the money was still somehow accessible. "FTX US remains fully solvent," Bankman Fried wrote in a Substack post on Jan. 12 2023 while he was under house arrest at his parents' home in Palo Alto California. He said the exchange "should be able to return all customers' funds."

Recovering the Duck's Assets

In some ways his narrative appears to be proving true. For months FTX's new CEO John Ray III and his team of restructuring advisors have been clawing back cash luxury property and crypto as well as tracking down missing assets. They've already collected more than $7 billion and that doesn't include valuables like $26 million in gifts and property to Bankman Fried's parents or the $700 million handed over to K5 Global and founder Michael Kives who invested FTX cash in companies like SpaceX. Some of those investments have seen a precipitous rise in value.

Quacking About Sam Coins

What Ray wasn't banking on was a huge market rebound. When he made those remarks crypto was mired in a bear market with bitcoin trading at around $16,000. It's now above $47,000. In September the bankruptcy team released a status report showing that FTX had $3.4 billion worth of digital assets with over $1.1 billion coming from its Solana investment. Solana fits into a category of so called "Sam coins," a group that also includes Serum a token created and promoted by FTX and sister hedge fund Alameda Research.

The Duck's Non Crypto Investments

Bankman Fried's investments weren't limited to crypto. He also used client money to back startups like Anthropic the artificial intelligence company founded by ex OpenAI employees. FTX invested $500 million in Anthropic in 2021 before the generative AI boom. Anthropic's valuation hit $18 billion in December 2023 which would value FTX's roughly 8% stake at about $1.4 billion.

FTX Customers: Quack or Whol?e

For FTX customers being made whole according to a judge's ruling means getting the cash equivalent of what their crypto was worth in November 2022. In other words they're not seeing any of the upside of FTX's investments or being given virtual coins that would allow them to cash out at higher valuations.

A Quacktastic Conclusion

Still some investors have found a way to participate in the FTX's ongoing odyssey. The market for FTX IOUs lit up last year as it became clear that the bankruptcy estate was cobbling together a lucrative portfolio. One financial firm that had lost around $100 million initially sold its FTX debt for 6 cents on the dollar in a new secondary market out of concern that he may never get a better deal. As of December those claims were going for more than 70 cents on the dollar.