Comments
A few quick observations written while not yet caffeinated:
- I think this kind of thing happened in the Mt. Gox bankruptcy due to appreciation in crypto values after the filing.
- Because there is a time limit for filing clawback claims, the estate needs to be file them even if it hopes it could be in a position to withdraw them later. Off the top of my head, that time limit is often two years after the filing of the bankruptcy case.
- I believe that EA-related fraudulent conveyance ("clawback") claims are, by dollar amount, only a portion of the clawback or preference claims filed by the estate. At least early on in the case, these claims were expected to be in the billions. Some relate to SBF shadiness, like asset transfers to insiders, but I believe some related to arms-length commercial transactions that fall under the clawback/preference rules. So the estate can repay everyone after cashing in on clawback/preference claims does not imply that it could if those claims were refunded.
- That the creditors may eventually be paid in full does not necessarily imply they will be made whole.
- First, it's not clear how the time value of money is factoring into FTX's statement. And final resolution is probably many years away.
- More significantly, at least as of December, the reorg plan was valuing customer crypto based on its value on the date of bankruptcy filing. So the customers would still be cheated out of their gains. Although I didn't check, I am guessing the value of FTT and maybe other crypto went down in the days before filing as a result of the unfolding FTX fiasco, so those FTX-caused losses would still be locked in for the customers under the plan.
Bear in mind that even if FTX can pay everyone back now, that does not mean they were solvent at the point they were put into bankruptcy.
and even if they were solvent at the time, that does not mean they were not fraudulent.
If I took all my customers money, which I had promised to safekeep, and went to the nearest casino and put it all on red, even if I won it would still be fraud.
Strong agree -- I enjoyed Brad Delong on this point.
My understanding (for whatever it's worth) is that most of the reason why a full repayment looks feasible now is a combination of:
I think it's reasonable to think of both of these as luck, and certainly a company relying on them to pay their debts is not solvent.
Perhaps. But it sounds like many[1] have been treating the fact that FTX did in fact face a liquidity crisis as strong (conclusive?) evidence of SBF's excessive risk-taking in a way that's relevant for intent. And now they claim that the extent to which customers are made whole or FTX was insolvent is not relevant.
It feels like people in general are happy to attribute good luck to his decisions but not bad luck.
Including the prosecution: "its customers were left with billions of dollars in losses", "the defendant talked with his inner circle about...how customers could never be repaid", "Billions of dollars from thousands of people gone", "there is no serious dispute that around $10 billion went missing"...
Well, regarding Anthropic at least, this particular bet may be lucky, but if you make a bunch of high-variance bets and one of them turns out in your favor, is that still just luck?
They almost certainly were not. (99%)
Do you want to create a market? I’d be happy to bet 1:70.
Not only they’re returning all the customer money, they were also able to pay somewhere between hundreds of millions and 1.5b (couldn’t find an accurate number) to the lawyers. My impression is that they found a lot of unaccounted money lying around. It’s also not obvious what was the value of Anthropic
The main reason they are in a better position to pay is the massive increase in the value of crypto assets after filing vs. the proposal to pay out the value of customer holdings on the day of bankruptcy. That is irrelevant to whether they were solvent in November 2022.
Surely they don't pay the lawyers. Surely after the debtors are paid they pay the shareholders?
Actually, the bankruptcy lawyers and other professionals get paid by the estate ahead of almost all unsecured claimants. Their claims are generally entitled to administrative expense priority. That priority exists because no sane lawyer or professional would agree to represent the bankrupt while accepting general unsecured creditor status (after all, they already know the debtor is insolvent!). The same is true of many other vendors and service providers who provide services to the estate after the bankruptcy petition is filed.
If everyone else had truly been made whole, equity holders are last in line to get the remainder. But I think the odds of SBF receiving a meaningful distribution here are ~zero; the bankruptcy judge would amend the reorg plan as necessary to prevent him from profiting from his crimes.
No, they already spent at least hundreds of millions (and possibly more than a billion- I saw a $1.5b number somewhere) on the lawyers. The first thing the lawyers did, back in November 2022, was getting paid
Agree. In fact, SBF himself described FTX International as insolvent on his substack.
Although I think people may be using the term "solvency" in slightly different ways in discussions around FTX. I think that in FTX's case, illiquidity effectively amounted to insolvency, and that it's uncertain how much they could have sold their illiquid assets for. If for some reason you were to trust SBF's own estimate of $8b, their total assets would have (just) covered their total liabilities.
Sullivan & Cromwell's John Ray said in December 2022 "We’ve lost $8bn of customer money" and I think most people have interpreted this as FTX having a net asset value of minus $8b. Presumably, though, Ray was referring either to the temporary shortfall in liquid funds or to the accounting discrepancy that was uncovered that summer/fall.
SBF also claimed that he could have raised enough liquidity to make customers substantially whole given a few more weeks, but was under extreme pressure to declare bankruptcy. I think there's a good chance this is accurate, in part because most of the pressure came from Sullivan & Cromwell and a former partner of the firm, who are now facing a class action lawsuit for their alleged role in the fraud.
(If anyone has evidence that FTX's liabilities did in fact exceed its assets by $8b at the time of the bankruptcy, I would be interested in seeing it.)
This seems unlikely to me. The books were just in too bad of a shape for anyone conducting even a minimum amount of due diligence to fork over the needed liquid assets. Selling the illiquid assets would have taken time, and in many cases doing so quickly would have depressed the value of those assets. Moreover, suspending withdrawals until liquidity could be obtained would have been the death knell for FTX's enterprise value. So, contra the earlier situations in which investors poured money into FTX, the potential upside would be fairly limited for accepting the risk of whatever landmines might be buried in FTX's financials.
The estate hopes everyone can be made whole as far as recovering the value in USD on the date of filing, but that is based in part on appreciation in the value of crypto and to a lesser extent on use of the trustee's muscular powers in bankruptcy (such as clawing back ~$30M from EVF, getting out of expensive sponsorship deals, etc.).
Finally, even assuming it was possible to get FTX into shape to attract liquidity, that would have involved massive effort. The universe in which SBF hires an army of forensic accountants to untangle FTX's disastrous accounting very quickly is a universe in which a lot of outsiders now have proof of very serious fraud. Those people are not likely to allow SBF to hide the extent of the fraud from would-be saviors.
Sorry, I just meant the second part ("was under extreme pressure to declare bankruptcy")