Some Crypto Traders Caught in FTX Collapse Are About to Get Paid Back — WSJ

By Alexander OsipovichStarting Tuesday, some FTX customers are set to get their money back, more than two years after Sam Bankman-Fried's cryptocurrency exchange filed for bankruptcy.Initial payouts starting this week will go to smaller customers with claims of less than $50,000. Ultimately, the bankruptcy estate plans to repay billions of dollars.FTX collapsed in November 2022 after it couldn't fulfill a surge of customer-withdrawal requests. It emerged that Bankman-Fried's trading firm, Alameda Research, had tapped FTX client funds to fund risky trading strategies. Bankman-Fried was convicted of fraud and sentenced to 25 years in prison.The bankruptcy estate has since raised funds to repay customers by selling off FTX's digital-token holdings and other assets, such as a stake in artificial-intelligence startup Anthropic, and by clawing back funds from crypto firms that did business with FTX.The estate last year forecast creditors would get 118% of their funds back.Getting full repayment of claims is unusual in bankruptcy. Many FTX customers were still unhappy, though, because payouts are calculated in dollars based on what their holdings were worth in November 2022-a low point for the crypto markets. Bitcoin and other digital currencies have since soared in price.Some former customers have also expressed frustration, saying they haven't been able to provide sufficient documentation to be eligible to get their money back. To receive payouts, claimants must pass a know-your-customer process, to prove the funds they had on FTX weren't the result of illegal activity.As of November, about 162,000 small claimants were approved to get payouts. An estimated 457,000 small claimants had valid claims but hadn't passed the verification process yet, according to a court filing by a consultant for the bankruptcy estate."Our team has been working relentlessly to deliver an efficient process for as many customers as we can," an FTX spokesperson said, noting there would be delays given the scale of the distributions."We must take every precaution to ensure that distributions are fully compliant with applicable Know Your Customer and anti-money laundering laws," the spokesperson added.This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).