The beginning of payments to customers from the imploded cryptocurrency exchange FTX underscores the possibility that the wealth amassed by the convicted mogul Sam Bankman-Fried was sufficient to make his investors and customers whole. 

FTX announced in a statement last month that its bankruptcy plan  — approved by a Delaware court — “will become effective on January 3, 2025,”  The company explained that the “Initial Distribution is expected to occur within 60 days,” with additional payments to follow. It plans to disburse between $14.7 billion and $16.5 billion.  

The chief executive officer of the FTX debtors, John Ray III, adds: “For the past two years, our team of professionals have meticulously and efficiently worked to recover billions of dollars to reach this point.” Mr. Ray took over FTX after its founder, Bankman-Fried, resigned in November of last year following the collapse of the exchange. Bankman-Fried was subsequently convicted of seven felonies and sentenced to 25 years in prison.

Mr. Ray, who is a veteran of many bankruptcy proceedings — including Enron’s — has been scathing in his denunciation of Bankman-Fried’s stewardship of FTX and an allied investment firm called Alameda Research. He said in court documents: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

FTX was at one point so admired that it drew more than $2 billion in private equity funding. Mr. Ray alleges that FTX failed in part because it was “in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals,” meaning Bankman-Fried and his camarilla. Many of his lieutenants — including his former girlfriend, Caroline Ellison — cooperated with prosecutors in building their case against Bankman-Fried in exchange for more lenient sentences. Some avoided prison altogether. 

Mr. Ray’s bankruptcy plan reckons that 98 percent of users will receive 119 percent of the declared value of their holdings. First to be reimbursed will be those who lost less than $50,000. Reimbursement rates, though, will be pegged to the value that cryptocurrency possessed in 2022. The value of one cryptocurrency, Bitcoin, fell to $16,000 after FTX’s collapse. It is now worth more than $100,000. The law firm handling FTX’s bankruptcy, Sullivan & Cromwell, has billed hundreds of millions of dollars for its work.

Bankman-Fried, who is appealing his sentence and requesting a new trial, contends that the bankruptcy proceedings have been mishandled and that billions of dollars in value has been destroyed. He was forbidden at trial from arguing that FTX’s customers would be made whole, with prosecutors contending that fraud requires only intent to deceive, not actual loss.

Bankman-Fried argues that Sullivan & Cromwell worked hand in glove with prosecutors to build the case against him. The firm tells the Sun that it “does not intend to comment on the Bankman-Fried appeal.” 

A report from the Department of Justice, though, found that the law firm did not violate “its duty of confidentiality, candor, and loyalty to its client by disclosing to prosecutors, without proper authorization from the FTX Group, that a crime had occurred at the company.” The opposing point of view is presented in an amicus curiae brief crafted by a cadre of bankruptcy attorneys and scholars.

The amici highlight the potential for “unfairness and inefficiency when a bankruptcy estate cooperates too closely with criminal prosecutors.” They argue that the bankruptcy estate acted “pervasively and persuasively” to aid prosecutors rather than recover maximum value. Chapter 11 of the Bankruptcy Code offers a path to “prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources.”

The amici argue that Sullivan & Cromwell’s billing — and that of Mr. Ray — may amount to “one of the highest fee ‘burn rates’ in bankruptcy history.” The brief argues that the law firm “played a pivotal and problematic role in inducing the bankruptcy—and then in leading the bankruptcy estate’s support for Bankman-Fried’s prosecution.” The bankruptcy sages also venture that Sullivan & Cromwell  “may have misled and pressured Bankman-Fried into authorizing the commencement of the bankruptcy.”

The bankruptcy brief on behalf Bankman-Fried blames what it calls the “crypto winter” of 2022 for the run on FTX deposits that led to the exchange’s collapse. A jury, though, concluded that Bankman-Fried unlawfully funneled billions of dollars in customer deposits to Alameda, which was then under Ellison’s leadership. When that went bust, so did FTX. Ellison testified that ultimate responsibility for that arrangement lay with Bankman-Fried. 

Bankman-Fried, in his appellate brief, argues that FTX was “still solvent and profitable” when Mr. Ray took the helm but that he “pushed it into bankruptcy proceedings and lost billions mismanaging the estate — while blaming Bankman-Fried for FTX’s collapse.” Bankman-Fried argues that “the late 2022 collapse was a liquidity — not a solvency — crisis spurred by rapid customer withdrawals.” He insists that he “never intended to defraud anyone.”

The issue of whether FTX could have made its customers whole is central to Bankman-Fried’s appeal. He argues that Judge Lewis Kaplan prevented him from arguing that there “were always sufficient assets to make customers whole,” while allowing the government to make the opposing case. His attorneys have written to the Second United States Appeals Circuit that “Sam Bankman-Fried was never presumed innocent. He was presumed guilty — before he was even charged.”