The victims of Sam Bankman-Fried’s financial crimes could be set to recoup almost all of the $16 billion that was lost when his crypto exchange FTX collapsed – unless the IRS steps in to seize the funds instead.
Bankman-Fried, 31, was convicted Thursday of one of the largest financial frauds in US history, after it was found he improperly funneled customer deposits from FTX to his hedge fund Alameda Research and to pay for a lavish lifestyle.
But while the former billionaire faces up to 115 years behind bars for his moves in and before November 2022, those who lost out big have been in a year-long fight to get back what was stolen.
In a surprising upturn, the defunct firm has seen a recent boost after unearthing previously missing assets alongside an appreciation of others, including a significant surge of Bankman-Fried’s former favorite cryptocurrency Solana.
The exchange is now run by bankruptcy specialist John J. Ray III, who announced this month that FTX clients could expect to recover over 90 percent of the ‘distributable value’ of the collapsed company’s coffers.
However, the IRS claims that FTX still owes $44 billion, leading to uncertainty over whether the government body will scoop up the funds in limbo before clients can recover their losses.
Former FTX chief Sam Bankman-Fried, 31, (pictured) was convicted on Thursday of one of the largest financial frauds in US history, as his victims scramble to recoup their losses
FTX has been run by bankruptcy expert John J Ray III, who has been tasked with recovering the stolen funds to clients of the cryptocurrency firm
Ray has said that the lion’s share of the recovery efforts will go towards smaller investors who held cash in FTX’s international and US exchanges, although it remains unclear how large the final amount will be, reports Forbes.
The outlet reported that the current plan for distribution could see venture capitalists such a Sequoia Capital and Temasek suffer significant financial losses, as those who withdrew over $250,000 in the nine days before FTX filed for bankruptcy set to take a 15 percent pay cut.
Others that won’t see a dime include former FTX lieutenants such as former general counsel Ryne Miller and co-founder Gary Wang, who testified against Bankman-Fried in his trial.
But while larger players may not recover all of their losses under Ray’s roadmap, smaller customers who tried to withdraw $250,000 or less from the exchange may have better luck.
One of the main reasons customers could recoup their funds is due to a recent appreciation in value of assets still held by FTX.
In particular, Bankman-Fried’s favorite cryptocurrency Solana, which he invested heavily in at the height of his influence, has skyrocketed in value in recent weeks.
Bankman-Fried invested heavily in cryptocurrency Solana, which has seen a significant surge in value in recent weeks that could help customers recoup their losses
FTX co-founder Gary Wang, who testified against Bankman-Fried at his trial, is among those who are exempt from recovering any losses from FTX’s collapse
The cryptocurrency took a severe hit when FTX collapsed. A year ago, the exchange held roughly 65 million ‘sols’ worth approximately $2 billion; by the end of the year, after the collapse, the same coins were worth just $650 million.
But since early September, Solana has over doubled in value, from trading at a low of $17.60 to a recent high of $39.49, as the value of the entire bankruptcy estate grew by around $1 billion in the last two weeks, according to CoinDesk.
Because a similar development has been seen in several other major assets, to a lesser extent, FTX’s crypto holdings alone have soared from being worth $1.7 billion on August 31 to $2.6 billion today.
FTX investments in other, successful companies have also helped recovery efforts, such as $500 million in AI startup Anthropic that is now worth between $3 billion and $4.5 billion, according to The Information.
As well as the stock appreciation, further assets not known to be held by FTX have also surfaced in the bankruptcy investigation, according to reports.
The collapsed firm also holds around $900 million in financial assets held in brokerage accounts, and still owns the infamous Bahamas penthouse where Bankman-Fried and his inner circle ran the company into the ground.
The penthouse and surrounding condos owned by FTX are reportedly worth $199 million.
The Bahamas penthouse and surrounding condos where Bankman-Fried and his inner circle ran FTX into the ground is among the assets that could help customers recover their funds
Prosecutors showed photos of the Bahamas penthouse at Bankman-Fried’s trial, revealing the ritzy home that boasted five bedrooms and a spa area
However, the promising figures around returning money lost by Bankman-Fried could be spoiled by the IRS’s own efforts.
The US government has filed 45 claims against FTX and its affiliates totaling $44 billion that it claims the company still owes.
The government body could have first claim over the funds too, with Zach Rosenberg, attorney and principal at crypto-focused Rosehill Legal, telling Forbes that the IRS may exercise its right to take precedence.
‘The IRS’s claim is administrative and, therefore, would default to having priority over unsecured claims,’ he said.
‘But whether most customers have unsecured claims or property interests (that is because they never ceded legal title to the assets deposited on FTX) is an open question that is the subject of a lawsuit filed against the estate.’
However, he added that the $44 billion figure from the IRS may be significantly inflated.
‘Based on available information, it appears the IRS levied a jeopardy assessment against the estate and assessed as much as it could at each level of the organization,’ he continued.
‘Meaning there is almost certainly a significant amount of duplication inherent in that $44 billion figure.’
The expert added that he predicts the IRS could look to settle for a lesser amount.