The victims of Sam Bankman-Fried’s financial crimes could recoup almost all of the $16 billion lost when his cryptocurrency exchange FTX collapsed — unless the IRS steps in to seize the money instead.
Bankman-Fried, 31, was convicted Thursday of one of the largest financial frauds in U.S. history after it emerged he improperly funneled customer deposits from FTX to his hedge fund Alameda Research 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 suffered great losses are already in a year-long fight to get back what was stolen.
In a surprising revival, the defunct company has seen a recent boost after unearthing previously missing assets alongside an appreciation of others, including a significant rise in 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 more than 90 percent of the “distributable value” of the bankrupt company’s treasury.
However, the IRS claims that FTX is still owed $44 billion, leading to uncertainty about whether the government agency will scoop up the funds in limbo before customers can recoup 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 is run by bankruptcy expert John J Ray III, who is tasked with recovering stolen funds from the cryptocurrency company’s customers
Ray has said the lion’s share of recovery efforts will go to smaller investors who held cash on FTX’s international and U.S. exchanges, although it remains unclear how big the final amount will be, reports Forbes.
The outlet reported that under the current distribution plan, venture capitalists like Sequoia Capital and Temasek could suffer significant financial losses, as those who withdrew more than $250,000 in the nine days before FTX filed for bankruptcy would take a 15 percent pay cut.
Others who won’t see a dime include former FTX lieutenants like 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 their losses under Ray’s roadmap, smaller customers who tried to withdraw $250,000 or less through the exchange may have better luck.
One of the main reasons why customers could get their money back is due to a recent increase in the value of the 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 has invested heavily in the cryptocurrency Solana, which has seen a significant increase 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 exempt from recovering any losses from FTX’s collapse
The cryptocurrency took a major hit when FTX collapsed. A year ago the exchange held roughly 65 million ‘sols’ worth about $2 billion; by the end of the year, after the collapse, the same coins were worth only $650 million.
But since early September, Solana has more than doubled in value, from a low of $17.60 to a recent high of $39.49, while the value of the entire bankruptcy estate has grown by about $1 billion in the past two weeks, according to Coin Bureau.
As a similar development has been observed in several other major assets, to a lesser extent, FTX’s crypto holdings alone have risen from a value of $1.7 billion on August 31 to $2.6 billion today.
FTX investments in other successful companies have also contributed to recovery efforts, such as $500 million in AI startup Anthropic, which is now worth between $3 billion and $4.5 billion, according to The information.
In addition to the increase in the value of the shares, other assets not known to be owned by FTX have also emerged in the bankruptcy investigation, according to reports.
The bankrupt company also owns approximately $900 million in financial assets in investment accounts, and still owns the infamous penthouse in the Bahamas where Bankman-Fried and his inner circle ran the company into the ground.
The penthouse and surrounding apartments owned by FTX are reportedly worth $199 million.
The Bahamas penthouse and surrounding apartments where Bankman-Fried and his inner circle ran FTX into the ground are among the assets that could help clients get their money back
Prosecutors showed photos of the penthouse in the Bahamas during Bankman-Fried’s trial, showing the chic five-bedroom home with a spa
However, the promising figures for repaying the money Bankman-Fried lost could be negated by the IRS’s own efforts.
The U.S. government has filed 45 claims against FTX and its subsidiaries totaling $44 billion that it says the company still owes.
The government body could also have first claim on the funds, with Zach Rosenberg, lawyer and director at crypto-focused Rosehill Legal, telling Forbes that the IRS can exercise its right of priority.
“The IRS claim is administrative in nature and would therefore take precedence over unsecured claims by default,” he said.
“But whether most customers have unsecured claims or ownership interests (i.e. because they never relinquished legal ownership of 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 IRS’s $44 billion figure may be significantly inflated.
“Based on the information available, it appears that the IRS has imposed a risk assessment on the estate and assessed as much as possible at every level of the organization,” he continued.
“This means that there is almost certainly a significant amount of duplication inherent in that $44 billion figure.”
The expert added that he predicts the IRS could settle for a lower amount.