FTX: what happens to your coins when the exchange holding them files Chapter 11

2026-07-31 · Illicit Finance

A customer who held one bitcoin at FTX ended up holding a claim valued at $16,871.63, the price the estate fixed as of the petition date. The confirmed plan pays that claim in full with 9% interest. The bitcoin stayed with the estate.

Case file

Field	Value
Matter	In re FTX Trading Ltd., Chapter 11
Court	Bankr. D. Del. Judge John T. Dorsey at filing; now Judge Karen B. Owens
Docket	Filed as 22-11068 (JTD); filings now caption 22-11068 (KBO)
Filed	11 November 2022 for all debtors except West Realm Shires Inc., which filed 14 November 2022
Debtors	FTX Trading Ltd. and 101 affiliated debtors
Last docket entry read	D.I. 36065, filed 31 July 2026
Customer shortfall	$9,244,590,039.23 at FTX.com and $141,009,391.00 at FTX.US, as defined in the confirmed plan
Claim valuation	Digital-asset claims converted to cash as of the petition date. Bitcoin fixed at $16,871.63
Plan confirmed	8 October 2024. Effective Date 3 January 2025
Post-confirmation vehicle	FTX Recovery Trust, a/k/a the Consolidated Wind Down Trust
Related criminal	United States v. Bankman-Fried, S.D.N.Y. No. 1:22-cr-00673 (LAK). Convicted on seven counts, sentenced to 300 months. Affirmed by the Second Circuit, 12 June 2026
Related offshore	FTX Digital Markets Ltd., official liquidation in the Supreme Court of the Commonwealth of The Bahamas. Chapter 15 recognised as a foreign main proceeding, Bankr. D. Del. No. 22-11217, 15 February 2023
Posture as of 31 July 2026	Still active. The FTX Recovery Trust made its fifth distribution on 31 July 2026 and is litigating settlements, discovery and claim objections, and expunging unverified customer entitlement claims. Omnibus hearings scheduled into October 2026
Key document	Declaration of John J. Ray III, D.I. 24, 17 November 2022

What the record shows

FTX Trading Ltd. and 101 affiliated debtors filed for Chapter 11 in the District of Delaware, according to the case-information page maintained by Kroll Restructuring Administration, the court-appointed claims and noticing agent. All but one filed on 11 November 2022. West Realm Shires Inc., the entity behind FTX.US, filed on 14 November. [P] John J. Ray III, who had previously overseen the Enron wind-down, became chief executive in the early morning hours of 11 November, and his first official act was to authorise the filings.

Six days later Ray filed a declaration in support of the petitions and the first day pleadings. “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,” he wrote, pointing to “the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals.”

The same declaration describes what the estate found on the finance side. “The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world.” [P]

Ray filed a longer account on 9 April 2023, the First Interim Report of John J. Ray III to the Independent Directors on Control Failures at the FTX Exchanges. It records “extensive commingling of assets” and says the group’s controlling individuals “stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets.” The same report states that a cyberattack drained approximately $432 million on the date of the petition.

How large was the shortfall?

The confirmed plan fixes the shortfall at each exchange as a defined dollar figure. The Dotcom Exchange Shortfall Amount is $9,244,590,039.23. The U.S. Exchange Shortfall Amount is $141,009,391.00. Both are stated in petition-date dollars, and both are subject to reduction for digital assets recovered from the November 2022 hack.

Figure disagreement, printed. The widely repeated “$8 billion hole” is a different quantity and comes from a different source. It is Alameda Research’s negative balance on FTX as of October 2022, described by Bankman-Fried in his own trial testimony and quoted in the Second Circuit’s opinion on his appeal. The estate does not use it as its measure of the customer shortfall, and the two numbers do not mean the same thing.

How were customer claims valued?

This is the mechanism that decides what a former FTX customer actually receives, and it is set out in one sentence of the confirmed plan. Section 4.4, “Valuation of Claims,” reads:

“Unless otherwise expressly provided in the Digital Assets Estimation Order, the value of a Claim in respect of a Digital Asset shall be calculated by converting the value of such Digital Asset into Cash as of the Petition Date utilizing the conversion rates set forth in the Digital Assets Conversion Table.”

The plan defines the Petition Date as 11 November 2022 for every debtor other than West Realm Shires Inc., and 14 November 2022 for that one.

The conversion rates come from an estimation order entered on 7 February 2024 under 11 U.S.C. § 502(c), which estimated the value of digital-asset claims “for the purposes of solicitation, voting and distribution” using the table attached as Exhibit 1. That table prices bitcoin at $16,871.63, ether at $1,258.84 and solana at $16.2471144.

Judge Dorsey explained the legal basis in a written opinion on 26 June 2024. “As with any estimation, the value of the claims must be determined as of the petition date as if the bankruptcy had never occurred. 11 U.S.C. § 502(b).” He also recorded that no bankruptcy court had previously estimated the value of cryptocurrency-based claims, and treated the question as one of first impression.

So a customer who held one bitcoin on FTX on 11 November 2022 did not hold a claim to a bitcoin. That customer held a claim measured at $16,871.63.

What are creditors being paid?

Under the plan, holders of allowed Dotcom Customer Entitlement Claims (Class 5A) and allowed U.S. Customer Entitlement Claims (Class 5B) receive cash equal to 100% of the allowed claim, plus interest at the Consensus Rate from the Petition Date through the applicable distribution date, plus any proceeds from the Supplemental Remission Fund. The plan defines the Consensus Rate as 9.0%.

The FTX Recovery Trust announced a fifth distribution of approximately $900 million with a record date of 16 June 2026 and a distribution date of 31 July 2026. The Trust’s own announcement gives cumulative distributions to date of 105% for Class 5A, 105% for Class 5B, 103% for general unsecured and digital asset loan claims, and 120% for convenience claims. [Q]

Both figures, the 100% and the 105%, are percentages of a claim denominated in November 2022 dollars.

The criminal cases

A jury convicted Samuel Bankman-Fried on 2 November 2023 on all seven counts of the sixth superseding indictment. The judgment records the convictions as two counts of wire fraud under 18 U.S.C. §§ 1343 and 2, two counts of wire fraud conspiracy under 18 U.S.C. § 1349, conspiracy to commit securities fraud and conspiracy to commit commodities fraud under 18 U.S.C. § 371, and money laundering conspiracy under 18 U.S.C. § 1956(h). Judge Lewis A. Kaplan imposed sentence on 28 March 2024: an aggregate term of imprisonment of 300 months, three years of supervised release, and a $700 special assessment.

Judge Kaplan also sentenced the four cooperating co-defendants. Caroline Ellison pleaded guilty to counts one through seven of the second superseding indictment and received 24 months on each count, running concurrently. Ryan Salame pleaded guilty to two counts and received an aggregate term of 90 months. Nishad Singh pleaded guilty to counts one through six of the fourth superseding indictment and received time served. Zixiao “Gary” Wang pleaded guilty to four counts and received time served on each.

Bankman-Fried moved for a new trial under Rule 33 on 5 February 2026, relying on what he described as newly discovered evidence. Judge Kaplan denied the motion on 28 April 2026. [P] On 12 June 2026 the Second Circuit affirmed the judgment of conviction. The panel was Parker, Lee and Kahn, and the opinion was written by Judge Barrington D. Parker.

The Bahamas track

FTX Digital Markets Ltd., the Bahamian operating entity, went into provisional liquidation in the Supreme Court of the Commonwealth of The Bahamas under the Companies (Winding Up Amendment) Act, 2011, and later into official liquidation. The joint liquidators are Brian C. Simms KC, Kevin G. Cambridge and Peter Greaves.

They filed a Chapter 15 petition in the Southern District of New York on 15 November 2022, Case No. 22-11516 before Judge Michael E. Wiles. The venue fight was short. Judge Dorsey signed an agreed order transferring the case to Delaware on 22 November 2022, the inter-district transfer notice issued on 29 November, and the New York case closed on 2 December 2022. The Chapter 15 continued in Delaware as Case No. 22-11217, where the court entered an Order Granting Recognition of Foreign Main Proceeding on 15 February 2023. [P]

The two estates then settled their overlap instead of litigating it to judgment. The liquidators’ own statement to the confirmation court sets out the sequence: a Cooperation Agreement on 6 January 2023, court-directed mediation from April 2023, and the FTX DM Global Settlement Agreement entered on 19 December 2023 and approved by both the Delaware court and the Bahamas Supreme Court, with the Delaware approval order entered on 24 January 2024. A first amendment and restatement was approved by both courts on 14 August 2024. The liquidators record that no creditor objected in either jurisdiction and that neither order was appealed.

The settlement gave named FTX.com customers an election as to which proceeding would resolve and pay their claims. The liquidators reported that more than 44,000 customers holding more than $1 billion of asserted claims in aggregate filed in the Bahamas liquidation, and that those creditors gave an irrevocable release of their claims against the Delaware debtors. [P] The two estates also agreed to coordinate reserves and the timing and size of distributions so that FTX.com customers in either proceeding would receive substantially identical relative treatment.

Where the case stands

The court confirmed the plan on 8 October 2024 and the Effective Date occurred on 3 January 2025, which is when the FTX Recovery Trust was established. The case is still live. The most recent docket entry read for this article is D.I. 36065, filed 31 July 2026, a Notice of Expungement of Unverified Customer Entitlement Claims. It records that the court entered an order on 11 May 2026 sustaining the Trust’s two hundredth omnibus objection, and that claims whose holders failed to submit requested KYC information by 4:00 p.m. Eastern on 30 June 2026 are disallowed and expunged in their entirety.

What I think happened

The bankruptcy was the consequence of a design decision made years earlier. FTX treated customer deposits as its own money.

Ray’s declaration gets quoted for the Enron line, and the operationally damning part is paragraph 50, the absence of an accurate list of bank accounts and signatories. That describes a company with no finance function at all, which is a separate problem from fraud. A business can commit fraud and still know where its money is. FTX appears to have managed both failures at once, and the second one made the first harder to detect and much harder to unwind.

Now the part I think most people still get wrong.

When you read “FTX creditors were made whole,” or “creditors got 105%,” you probably hear that customers got their assets back. They did not. Section 4.4 of the plan turned every digital-asset claim into a dollar figure priced on 11 November 2022, near the bottom of a bear market, and Judge Dorsey’s opinion explains why: section 502(b) values a claim as of the petition date as if the bankruptcy had never happened. That is ordinary bankruptcy law working exactly as designed. No fraud was needed to produce the gap between what a customer held and what a customer received. The gap is the arithmetic of $16,871.63 versus whatever bitcoin has done since, and the estate kept the difference.

I want to be fair about the other side of that. The estate did not create the rule, the Bankruptcy Code did, and Judge Dorsey was working through a genuine question of first impression with no precedent to lean on. The creditors who ended up above par did better than most people expected in November 2022. The point is narrower: a recovery percentage above 100 tells you nothing about whether you got your asset back, because the denominator changed the moment the petition was filed.

The Bahamas story is the one worth studying if you hold assets through offshore structures, and it did not end the way the early coverage suggested. Two estates spent a year fighting over which court had jurisdiction over what, then settled. Customers eventually got to elect which proceeding would pay them. Notice what that means for you. You do not get to pick which court has your assets once the filing happens. That question was answered years earlier by which entity you contracted with and where that entity was incorporated. Most FTX customers had no idea which FTX entity their account belonged to, and by the time 44,000 of them were choosing between Wilmington and Nassau, paperwork they had never read had already narrowed the choice.

What would have changed the outcome

The structural question this case asks is simple, and most people have never answered it for their own holdings: is your position an asset you own, or a claim against somebody who owes you one?

Assets held in your own name with a third-party qualified custodian sit outside the platform’s balance sheet, so they do not become part of its estate if it fails. The custodian holds them for you, and the platform you trade through has a relationship with the custodian and no possession of your coins. An exchange account balance is a different animal. You have a contractual claim, its priority depends on the documents you accepted, and its value can be fixed on a date you do not choose.

The practical version: hold custody and execution separately. Move assets to the venue to trade, and move them back. Balances that live on an exchange between trades are balances you have lent to the exchange.

DAG coordinates independent custody arrangements with third-party qualified custodians for digital-asset holders, which is the arrangement described above.

What that does not do: it does not address market risk, it does not stop a holder from authorising a transfer they should not have made, and it does not remove counterparty risk at the custodian itself, which is the subject of the Prime Trust article in this cluster. As DAG’s own disclosure puts it, custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them.

Sources

In re FTX Trading Ltd., No. 22-11068, Bankr. D. Del. (filed as JTD, now KBO):

Declaration of John J. Ray III in Support of Chapter 11 Petitions and First Day Pleadings, D.I. 24, filed 17 November 2022.
Notice of Filing First Interim Report of John J. Ray III to the Independent Directors on Control Failures at the FTX Exchanges, D.I. 1242 and Exhibit A thereto, filed 9 April 2023.
Order Granting Motion of Debtors to Estimate Claims Based on Digital Assets, D.I. 7090, entered 7 February 2024, and the Digital Assets Conversion Table at Exhibit 1, D.I. 7090-1.
Memorandum Opinion and Order (Dorsey J.), D.I. 19069, 26 June 2024.
Second Amended Joint Chapter 11 Plan of Reorganization of FTX Trading Ltd. and Its Debtor Affiliates, D.I. 26029, filed 30 September 2024. Sections 2.1.39, 2.1.72, 2.1.143, 2.1.203, 4.3.6, 4.3.7 and 4.4.
Statement of the Joint Official Liquidators of FTX Digital Markets Ltd. in Support of Confirmation, D.I. 26052, filed 30 September 2024.
Findings of Fact, Conclusions of Law and Order Confirming the Second Amended Joint Chapter 11 Plan, D.I. 26404, entered 8 October 2024.
Notice of Effective Date, D.I. 29127, filed 3 January 2025.
Notice of Expungement of Unverified Customer Entitlement Claims, D.I. 36065, filed 31 July 2026, and the order it implements, D.I. 35557, entered 11 May 2026.

FTX Digital Markets Ltd.:

Chapter 15 petition, Bankr. S.D.N.Y. No. 22-11516 (Wiles J.), filed 15 November 2022; agreed order transferring venue signed 22 November 2022; case closed 2 December 2022.
Order Granting Recognition of Foreign Main Proceeding, Bankr. D. Del. No. 22-11217, D.I. 129, entered 15 February 2023.
Order approving the Global Settlement Agreement and Loan Agreement, No. 22-11217, D.I. 141, entered 24 January 2024; order approving the First Amendment and Restatement, D.I. 172, entered 14 August 2024.

United States v. Bankman-Fried, S.D.N.Y. No. 1:22-cr-00673 (LAK):

Jury verdict, 2 November 2023.
Judgment in a Criminal Case, D.I. 424, imposed 28 March 2024, filed 29 March 2024.
Judgment as to Ryan Salame, D.I. 445, filed 29 May 2024.
Judgment as to Caroline Ellison, D.I. 512, filed 26 September 2024, amended at D.I. 520.
Judgment as to Nishad Singh, D.I. 531, filed 30 October 2024.
Judgment as to Zixiao (Gary) Wang, D.I. 543, filed 25 November 2024.
Memorandum and Order Denying Motion for a New Trial, D.I. 595, 28 April 2026.
United States v. Bankman-Fried, No. 24-961-cr (2d Cir. 12 June 2026), affirming.

Estate and claims agent:

Kroll Restructuring Administration, court-appointed claims and noticing agent, case information page for In re FTX Trading Ltd.
FTX Recovery Trust, announcement of the fifth distribution, 17 July 2026.

Celsius: the ruling that turned 600,000 depositors into unsecured creditors — the ruling that decided who owns platform-held assets, and the reason the answer is documentary.
Three Arrows Capital: an offshore liquidation from the inside — the offshore liquidation that ran alongside this one.
Prime Trust: the custodian that could not open its own wallets — the case that complicates the tidy lesson about using a custodian.

Disclosure. Max Avery is affiliated with Digital Ascension Group (DAG). Investment advisory services are offered through DAG Wealth, an SEC-registered investment adviser (CRD No. 328627). Registration does not imply a certain level of skill or training. DAG is not a law firm and does not provide legal or tax advice. Custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them. Nothing here is investment, legal, or tax advice, or a recommendation to buy or sell any asset. This article describes matters of public record; charges are allegations and defendants are presumed innocent unless and until proven guilty.