Some clawback cases could become harder to win — or may be withdrawn. FTX’s restructuring lawyers have already filed about a dozen suits, including against Bankman-Fried’s parents, and they expect to file more clawback claims this year. Other high profile lawsuits include one against K5, an investment firm headed by Michael Kives, as well as Voyager Global.
Some of the clawback cases involve allegations of fraud, but not all do. Before fraud claims are argued, there is typically a legal fight over whether a company was insolvent at the time of the investment or that the investment led to insolvency. If every FTX creditor stands to get 100 cents on the dollar, the clawback cases that don’t involve fraud wouldn’t serve much of a financial purpose and may be more difficult to argue, some lawyers say. “In theory, clawbacks may go away there,” said Eric Monzo, a partner at Morris James who focuses on bankruptcy claims.
A rise in some crypto asset values could also impact the math. Creditors wanted the bankruptcy court to calculate their claims based on the current asset values rather than when the company collapsed in November 2022 amid a prolonged crypto market meltdown. But this week, the judge said that debts were linked to the date the company filed for bankruptcy. This gives FTX the benefit of any market upswings. For example, Bitcoin was worth about $17,000 when FTX filed for bankruptcy and now it’s worth about $43,000, making it a lot less expensive to pay off creditors demanding the value of their lost crypto. FTX, through K5, made an investment in SpaceX, which has risen dramatically in value.
What about Bankman-Fried’s sentencing and appeal? It is unclear whether the trial judge will consider any evidence about the potential for full payouts in the sentencing, though it could theoretically color his view of the harm caused. What is likely is that Bankman-Fried’s lawyers will argue on appeal that the trial judge was wrong to allow prosecutors to tell jurors that customers had lost their money and exclude evidence and testimony that suggested customers could be made whole. — Andrew Ross Sorkin and Ephrat Livni
IN CASE YOU MISSED IT
Job and wage growth far surpass expectations. The U.S. economy added 353,000 jobs last month, almost twice as many as the number forecast, and wages grew 0.6 percent from December. Workers were finding new jobs despite a series of layoffs in the tech sector.