Judge approves $12.7 billion settlement between FTX and CFTC, bringing 20-month-long lawsuit to an end

Judge P. Kevin Castel of the United States District Court for the Southern District of New York approved a $12.7 billion settlement agreement between FTX, Alameda Research and the Commodity Futures Trading Commission, according to a court filing on Wednesday.

Defunct crypto exchange FTX and associated trading firm Alameda Research previously agreed on the settlement figure with the CFTC in July after months of negotiations, pending the consent order approval.

It ends the lawsuit the CFTC lodged against the exchange, former FTX CEO Sam Bankman-Fried and Alameda in December 2022, alleging their fraud caused customers to lose $8 billion. The agency initially pushed for a $52.2 billion claim.

As part of the settlement, the CFTC agreed it would receive nothing as long as FTX complies with its reorganization plan. Therefore, FTX will pay all of the up to $12.7 billion to creditors, subject to available funds. FTX said in the July court filing that the CFTC is "the most significant single creditor" in its Chapter 11 bankruptcy cases.

FTX and Alameda are required to pay $8.7 billion in restitution to those who suffered losses due to their violations of the Commodity Exchange Act. An additional $4 billion in disgorgement is mandated for gains obtained through the violations.

The restitution and disgorgement amounts will be managed through the firms’ ongoing bankruptcy proceedings. Funds or assets from the bankruptcy will be used to repay FTX and Alameda creditors, overseen by either the interim CEO of FTX Trading, John Ray, or the plan administrator to ensure distribution in compliance with the court's order.

Beyond the settlement transactions, the FTX defendants and associated parties are also permanently prohibited from engaging directly or indirectly in trading, transactions involving “commodity interests” and related activities. This includes a prohibition on engaging in any digital asset commodities, such as bitcoin, ether or USDT, for their own account or for any account in which they have a direct or indirect interest, the filing stated.

FTX and Alameda must fully cooperate with the CFTC in any related investigations or proceedings, including providing necessary documents and testimony.

FTX's collapse into bankruptcy

FTX filed for bankruptcy protection in November 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.