FTX and Bybit Reach $228M Settlement in Bankruptcy Asset Recovery

TLDR

• FTX agrees to $228M settlement with Bybit/Mirana ($175M in digital assets, $53M in BIT tokens)
• Original lawsuit sought $1B, claiming Bybit exploited VIP status for preferential withdrawals
• Settlement hearing scheduled for November 20, 2024
• Part of broader FTX bankruptcy plan approved October 2024, promising 118% repayment to users
• Multiple FTX executives have reached plea deals with varying sentences

The FTX bankruptcy estate has reached a $228 million settlement agreement with cryptocurrency exchange Bybit and its investment arm Mirana, marking another step forward in the estate’s ongoing efforts to recover assets for its creditors.

According to court documents filed on October 24, the settlement includes $175 million in digital assets and an additional $53 million worth of BIT tokens.

This agreement represents a reduction from the initial $1 billion the FTX estate sought when filing the lawsuit in Delaware court in November 2023.

The lawsuit stemmed from allegations that Bybit and Mirana leveraged their VIP status to withdraw approximately $327 million from FTX just before its collapse in November 2022.

FTX’s advisors presented evidence suggesting that Mirana had pressured FTX staff members to fast-track their withdrawal requests, allowing them to bypass the standard delays that regular users faced during the exchange’s final days.

Court filings reveal that FTX maintained an internal database tracking these transactions, which showed Mirana successfully withdrawing substantial amounts even after FTX had officially suspended withdrawals for regular users on November 8, 2022.

The preferential treatment was allegedly granted due to close relationships between Mirana and FTX’s executive team.

The settlement agreement now awaits final approval at a hearing scheduled for November 20, 2024. If approved, the deal will enable FTX to reclaim the digital assets currently held on Bybit’s platform and allow for the sale of BIT tokens to Mirana.

FTX’s legal team acknowledged that while they believed their claims had merit, continuing with the litigation would have resulted in a lengthy and costly legal battle. The settlement provides a faster path to asset recovery for the estate’s creditors.

The lawsuit had also named several individual defendants, including Singapore-based associates and a Mirana executive, who were believed to have benefited from the preferential withdrawal arrangements.

This settlement comes in the wake of FTX’s broader bankruptcy plan approval on October 7, 2024. Under this plan, the exchange’s debtors are set to receive approximately 118% of their claims in cash, representing a 98% repayment rate for users.

The case is part of a larger series of legal proceedings involving former FTX executives. Several key figures have reached agreements with federal prosecutors in recent months, resulting in varying sentences.

One former executive received a two-year prison sentence in September 2024, with the reduced term attributed to their cooperation with authorities in uncovering details about FTX’s collapse.

Ryan Salame, who served as CEO of FTX digital markets, received a 7.5-year prison sentence in May 2024. Meanwhile, Nishad Singh, the exchange’s former head of engineering, has submitted a request to the court seeking exemption from prison time.

The settlement negotiations between FTX and Bybit took place over several months, with both parties working to reach an agreement that would avoid prolonged litigation while ensuring a fair recovery of assets.

The agreement includes specific provisions for the handling and transfer of digital assets, with clear timelines established for the completion of all transactions once the court grants final approval.

Legal experts monitoring the case note that this settlement demonstrates the bankruptcy estate’s pragmatic approach to asset recovery, balancing the potential for larger recoveries against the practical constraints of extended legal proceedings.

The $228 million settlement also includes provisions for the timing and manner of the BIT token sales, designed to minimize potential market impact while ensuring optimal value recovery for FTX creditors.