Debtors’ Motion for Entry of an Order: FTX Trading Ltd. and the Commodity Futures Trading Commission (CFTC)

Introduction

FTX Trading Ltd. and its related debtors are in a legal process known as Chapter 11 bankruptcy. They have filed a motion, which is a formal request to the court, asking for approval to enter into a settlement agreement with the Commodity Futures Trading Commission (CFTC). This motion also seeks the court’s permission to act on the agreement and provide related relief.

Background of the Case

FTX Trading Ltd. and its affiliated companies filed for Chapter 11 bankruptcy in November 2022. Chapter 11 bankruptcy allows a business to reorganize its debts while continuing to operate. FTX Trading Ltd. and its debtors are referred to as “debtors-in-possession” because they still control their business operations and assets while the bankruptcy case is ongoing.

The CFTC has filed claims against FTX Trading Ltd. and its insiders, accusing them of fraud and other violations. These claims amount to about $52.2 billion and include demands for restitution, disgorgement, and civil monetary penalties. Restitution means paying back money to those harmed, disgorgement is giving up profits gained from illegal activities, and civil monetary penalties are fines for breaking the law.

The Proposed Settlement

FTX Trading Ltd. has been negotiating with the CFTC for several months to reach a settlement. The proposed settlement is a way to resolve these claims without going through a lengthy and costly court process. This settlement would become final only if the court approves the debtors’ reorganization plan.

Key Terms of the Proposed Settlement

1. Allowed CFTC Claim: The CFTC will have a claim for $4 billion, which is much less than the original $52.2 billion. This claim will be used to make additional payments to certain creditors under the Supplemental Remission Fund as outlined in the reorganization plan.
2. Subordination: The CFTC’s claim will be paid only after all other creditors’ claims and interest are paid.
3. Credit Against District Court Judgment: FTX Trading Ltd. will receive credit for any amounts paid to customers and lenders towards the $8.7 billion restitution judgment.
4. No Further Claims: The CFTC will not have any other claims against FTX Trading Ltd. in the bankruptcy cases once the settlement is approved.

Benefits of the Proposed Settlement

The proposed settlement offers several benefits to FTX Trading Ltd. and its creditors:

• Avoids Litigation: It eliminates the need for expensive and time-consuming litigation, providing a quicker resolution to the bankruptcy case.
• Reduces Liability: It significantly reduces the amount FTX Trading Ltd. would owe compared to the original claims by the CFTC.
• Certainty for Creditors: It gives creditors a clearer picture of what they can expect to recover from the bankruptcy proceedings.
• Focus on Reorganization: Allows FTX Trading Ltd. to focus on its reorganization plan, aiming for a successful exit from bankruptcy.

The Role of the Bankruptcy Court

The bankruptcy court plays a crucial role in this process. It will review the proposed settlement to ensure it is fair and in the best interests of all parties involved. The court’s approval is necessary for the settlement to take effect. This process includes a hearing where the court will listen to any objections and make a final decision.

The Negotiation Process

The settlement is the result of extensive negotiations between FTX Trading Ltd. and the CFTC. Both parties have worked hard to reach an agreement that balances the needs of the creditors, the debtors, and the regulatory body. The Enforcement Division of the CFTC has recommended the proposed settlement, showing their support for the resolution.

Impact on FTX Trading Ltd.’s Reorganization Plan

The proposed settlement is a key part of FTX Trading Ltd.’s reorganization plan. By resolving the CFTC’s claims, the debtors can move forward with their plan to reorganize and emerge from bankruptcy. This plan aims to pay back creditors as much as possible and restructure the company’s debts and operations to ensure future stability.

Terms of the Reorganization Plan

1. Payment of Claims: Non-governmental creditors will be paid in full, and interest will be paid at the Consensus Rate, which is a rate agreed upon by the parties.
2. Supplemental Remission Fund: This fund will provide additional payments to certain creditors affected by commodity-related contracts.
3. Efficient Distribution: The plan aims for a swift resolution and distribution of assets to creditors, avoiding prolonged litigation and associated costs.

Stakeholder Involvement

FTX Trading Ltd. has discussed the proposed settlement with various stakeholders, including the Official Committee of Creditors and the Ad Hoc Committee of Non-U.S. Customers. Their input has been valuable in shaping the settlement and ensuring it meets the needs of those affected by the bankruptcy.

Communication and Transparency

The debtors have maintained transparency throughout the process, providing regular updates to stakeholders and ensuring they have a voice in the proceedings. This approach helps build trust and facilitates a smoother reorganization process.

Legal Considerations

The proposed settlement must comply with various legal requirements:

• Bankruptcy Rule 9019: This rule allows the court to approve settlements if they are fair, reasonable, and in the best interests of the estate.
• Section 105(a) of the Bankruptcy Code: This section gives the court the power to issue orders necessary to carry out the provisions of the Bankruptcy Code.

Factors Considered by the Court

When deciding whether to approve the settlement, the court will consider:

1. Probability of Success in Litigation: The chances of winning if the case goes to trial.
2. Complexity and Expense: The complexity of the case and the costs involved in continuing litigation.
3. Best Interests of Creditors: Whether the settlement is in the best interests of the creditors.
4. Reasonableness: Whether the terms of the settlement are reasonable given the circumstances.

Final Thoughts

The proposed settlement between FTX Trading Ltd. and the CFTC represents a significant step towards resolving the company’s bankruptcy case. By reducing the amount owed, avoiding costly litigation, and providing a clear path forward, this settlement benefits all parties involved. The court’s approval will allow FTX Trading Ltd. to focus on its reorganization plan and work towards a successful future.

In conclusion, the proposed settlement is a crucial component of FTX Trading Ltd.’s efforts to resolve its bankruptcy case efficiently and fairly. It addresses the claims made by the CFTC, reduces potential liabilities, and provides a framework for the company’s reorganization. With the court’s approval, this settlement will pave the way for a more stable and secure future for FTX Trading Ltd. and its creditors.

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The Rise of BlackRock’s BUIDL Token

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Tokenized U.S. Treasuries and Their Benefits

U.S. Treasuries are at the forefront of the tokenization trend. Many digital asset firms and global financial giants are racing to put traditional instruments like government bonds, private credit, and funds on blockchain. This move aims to achieve faster settlements and operational efficiencies.

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Market Growth and Major Players

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The Role of DeFi Protocols

DeFi protocols have been crucial in the success of tokenized treasury products. Ondo Finance and Mountain Protocol, for example, use BlackRock’s BUIDL token as a backing asset. This allows them to offer their own yield-products, attracting more investors to the tokenized treasury market.

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Digital Asset Brokers and Institutional Investors

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Real-World Asset Tokenization

The tokenization of real-world assets (RWAs) is a growing trend. U.S. Treasuries are just the beginning. Many digital asset firms and financial heavyweights are looking to tokenize other traditional instruments like private credit and funds.

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The Future of Tokenized Treasury Products

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Conclusion

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The tokenized treasury market, led by BlackRock, is not just growing but transforming the way investors view traditional financial instruments. This evolution is bringing new opportunities and efficiencies to the financial world, making it an exciting space to watch.