FTX Reaches $228 Million Settlement with Bybit Amid Bankruptcy Recovery Efforts

In a significant move within its bankruptcy recovery process, FTX has reached a $228 million settlement with cryptocurrency exchange Bybit and its affiliates, resolving a high-stakes legal dispute. The lawsuit, filed in November 2023, aimed to recover nearly $1 billion in assets, with FTX now granted permission to withdraw $175 million in digital assets held on Bybit’s platform and to sell approximately $53 million in BIT tokens to Mirana Corp., Bybit's investment arm.

The settlement comes as FTX’s bankruptcy proceedings, initiated in November 2022, continue. FTX had accused Bybit and associated entities of misusing “VIP” access and connections with FTX executives to make $327 million in withdrawals, cashing out digital assets shortly before FTX’s collapse. FTX argued these withdrawals were improper and constituted preferential transfers that could be clawed back under bankruptcy law.

Under the terms of the settlement, defendants who withdrew assets before FTX’s bankruptcy filing will retain creditor claims equaling 75% of their account balances as of the filing date. This arrangement is expected to reduce the overall claims against FTX’s estate, saving considerable costs for the estate. A court hearing to approve the settlement is scheduled for November 20, 2024.

The legal team representing FTX acknowledged that the settlement mitigates litigation risks, costs, and complications related to asset enforcement and volatility. Securing access to these assets strengthens FTX’s ability to fulfill creditor obligations without prolonged legal battles. Although confident in their claims, FTX's attorneys emphasized that the settlement offers certainty and immediate asset recovery.

This agreement aligns with FTX’s broader strategy to return funds to creditors and streamline its operations. In October 2024, FTX secured court approval for a reorganization plan that aims to disburse at least $12.6 billion to customers with assets frozen on the platform. The Bybit settlement marks a substantial addition to the assets FTX has gathered for this purpose, contributing meaningfully to creditor recoveries.

The settlement also reflects FTX’s broader asset recovery strategy, which includes pursuing claims against Bybit Fintech Ltd., Mirana Corp., and associated parties who withdrew funds in close proximity to the company’s bankruptcy. By settling, FTX sidesteps the challenges of complex and potentially drawn-out litigation, which could involve jurisdictional issues and enforcement delays.

As part of its reorganization plan, FTX remains focused on maximizing recoveries for creditors. The settlement with Bybit, negotiated under the leadership of FTX CEO John J. Ray III, underscores the company’s commitment to negotiated resolutions to expedite its bankruptcy process.

If the court approves the settlement, it will be a pivotal step in FTX’s bankruptcy case, facilitating asset distribution to creditors and marking meaningful progress toward closing remaining claims and concluding the bankruptcy proceedings.