FTX has finalized a $228 million settlement with cryptocurrency exchange Bybit and its affiliates. This agreement ends a lawsuit initiated in November 2023, which sought to recover roughly $1 billion in assets. As part of the settlement, FTX will withdraw $175 million in digital assets from Bybit’s platform. Additionally, FTX plans to sell around $53 million in BIT tokens to Mirana Corp., Bybit’s investment division.
Background of the Lawsuit
The settlement occurs during FTX’s ongoing bankruptcy process, which began in November 2022. FTX alleged that Bybit and related parties exploited “VIP” access and their connections with FTX executives. They withdrew $327 million in digital assets and cash just before FTX’s collapse. FTX labeled these withdrawals as preferential and fraudulent transfers, making them recoverable under bankruptcy law.
Key Terms of the Settlement
The settlement allows defendants who withdrew funds before the bankruptcy to maintain creditor claims equal to 75% of their account balances as of the filing date. This arrangement is expected to generate significant savings for FTX by minimizing claims from the defendants. A court hearing to approve the agreement will occur on November 20, 2024.
Advantages of the Settlement
FTX recognized the risks and costs of prolonged litigation, such as enforcement difficulties and asset volatility. By settling, FTX secures immediate access to valuable assets. This action enhances its ability to distribute funds to creditors. The legal team believes in the strength of their claims but acknowledges that the settlement provides certainty and speeds up asset recovery.
Broader Reorganization Efforts
This resolution supports FTX’s larger initiatives to repay creditors and efficiently wind down operations. Earlier in October 2024, a court approved FTX’s reorganization plan. This plan aims to distribute at least $12.6 billion to customers with stranded digital assets on the platform. The agreement with Bybit significantly contributes to this objective, increasing the pool of assets available for distribution.
Strategic Approach to Asset Recovery
The lawsuit against Bybit formed part of FTX’s strategy to recover assets after its Chapter 11 bankruptcy filing. The legal action specifically targeted Bybit Fintech Ltd., Mirana Corp., and related individuals. FTX alleged that these parties withdrew assets that should have been included in the bankruptcy estate. By resolving the dispute through a settlement, FTX avoids the complications and costs of extended litigation.
Implications of the Settlement
The reorganization plan details how recovered assets will distribute to customers and creditors, focusing on maximizing recoveries. The settlement with Bybit is one of several negotiated by FTX CEO John J. Ray III as part of the company’s bankruptcy strategy. These efforts highlight the success of negotiated resolutions in advancing the bankruptcy process.
Conclusion
The court hearing to approve the settlement is a crucial step in FTX’s bankruptcy case. If approved, the agreement will facilitate the distribution of recovered assets to creditors. This marks significant progress in FTX’s efforts to resolve outstanding claims and conclude its bankruptcy proceedings.
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