Bankrupt cryptocurrency exchange FTX and the U.S. Commodity Futures Trading Commission (CFTC) have reached a $12.7 billion settlement, pending approval from a Delaware judge.

If approved, the entire $12.7 billion will be allocated to paying back FTX’s creditors, as the CFTC has decided against seeking a civil monetary penalty.

$12.7 Billion Settlement

The settlement, detailed in a July 12 filing, comes after extensive negotiations between the bankrupt exchange and the U.S. commodities regulator.

The Proposed Settlement is an integral and valuable component of the Debtors’ proposed chapter 11 reorganization plan, stated CFTC senior trial attorney Carlin R. Metzger and FTX’s CEO John J. Ray III.

It resolves ongoing litigation and disputes with one of the largest creditors of the Debtors, avoids the cost and delay of further litigation, and mitigates a significant risk of diminution of the assets available for distribution to creditors.”

The lawsuit, filed by the CFTC in December 2022, accused FTX, its former CEO Sam Bankman-Fried, and its sister trading firm Alameda Research of fraud and misrepresentations. The CFTC claimed these actions caused customers to lose $8 billion and initially sought a $52.2 billion claim, which has now been settled at $12.7 billion.

The settlement allocates $8.7 billion for restitution and $4 billion for disgorgement. The $4 billion in disgorgement will be subordinate to the payment of all creditor claims, ensuring their priority.

Additionally, the filing states that the CFTC will receive nothing if FTX complies with its reorganization plan, allowing up to $12.7 billion to be distributed to creditors, subject to available funds.

CFTC Forgoes Penalty in FTX Settlement

The CFTC has also chosen not to pursue a civil monetary penalty. Instead, the entire $12.7 billion will be allocated to repaying FTX’s creditors.

In this bespoke settlement, the CFTC foregoes its own recovery against FTX in order to supplement the recoveries of customers and cryptocurrency lenders beyond the levels typical in chapter 11 cases, explained Andy Dietderich, partner at Sullivan Cromwell and lead counsel for the FTX Debtors.

A hearing on the settlement is scheduled for August 6 in the Bankruptcy Court for the District of Delaware. FTXs proposed reorganization plan aims for a 118% return for 98% of creditors with claims under $50,000, based on the asset prices at the time of FTX’s bankruptcy filing in November 2022.

However, some creditors have opposed this plan, arguing that payouts should reflect the current value of cryptocurrencies, which have increased by 166% since the bankruptcy filing. Creditors are voting on their preferred payout method, and on October 7, U.S. Bankruptcy Court Judge John Dorsey will make the final decision.