by When the FTX cryptocurrency exchange filed for bankruptcy about 15 months ago, it seemed that few customers would get much money or cryptocurrency back from the platform. As John Ray III, who took over as CEO during the bankruptcy, said: “At the end of the day, we’re not going to be able to recover all the losses here.” He was countering Sam Bankman-Fried’s repeated claims that he could recover money from every client.
Well, it turns out that FTX lawyers told a bankruptcy judge this week that they expected to pay creditors in full, although they said that was no guarantee and they had not yet revealed their strategy.
The surprising turn of events is raising serious questions about what will happen next. Among them: What does this mean for lawsuits FTX has filed in an attempt to recover billions in assets the company says it is owed?
Will the possibility of clients being compensated be raised in the Bankman-Fried ruling? Will the potential relief for customers help its appeal?
Some recovery cases may be more difficult to win or may be withdrawn. FTX restructuring lawyers have already filed about a dozen lawsuits, including against Bankman-Fried’s parents, and expect to file them. More recovery 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 recovery cases involve allegations of fraud, but not all. Before fraud claims are brought, there is usually a legal dispute over whether a company was insolvent at the time of the investment or whether the investment led to insolvency. If every FTX creditor could receive 100 cents on the dollar, recovery cases that don’t involve fraud wouldn’t serve much of a financial purpose and might be harder to argue, some attorneys say. “Theoretically, recoveries can disappear there,” said Eric Monzo, a partner at Morris James who specializes in bankruptcy claims.
An increase in the value of some cryptoassets could also affect the math. Creditors wanted the bankruptcy court to calculate their claims based on current asset values rather than when the company collapsed in November 2022 amid a prolonged crypto market crisis. But this week, the judge said the debts were tied to the date the company filed for bankruptcy. This gives FTX the benefit of any market rally. For example, Bitcoin was worth around $17,000 when FTX filed for bankruptcy and is now worth around $43,000, making it much less expensive to pay creditors demanding the value of your lost crypto. FTX, through K5, made an investment in SpaceX, which has increased dramatically in value.
What about Bankman-Fried’s sentencing and appeal? It is unclear whether the trial judge will consider any evidence about the possibility of full payments at sentencing, although in theory it could influence 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 the jury that the clients had lost their money and to exclude evidence and testimony suggesting that the clients could recuperate. —Andrew Ross Sorkin and Ephrat Livni
IN CASE YOU HAVE MISSED IT
Job and wage growth far exceeds expectations. The U.S. economy added 353,000 jobs last month, nearly double what was expected, and wages rose 0.6 percent from December. Workers were finding new jobs despite a series of layoffs in the technology sector.
Meta said it would pay its first dividends after reporting bumper profits. Profits for the last quarter of the parent company of Facebook, Instagram and WhatsApp they were three times more than during the same period in 2022. Meta also announced a $50 billion buyback, prompting one analyst to say the company is “coming of age.”
The PGA Tour raised $1.5 billion from American investors. The funding round was led by Fenway Sports Group, owner of Major League Baseball’s Boston Red Sox, and a host of other big names in sports and finance. The deal raises new questions about a tentative agreement between the Tour and Saudi-backed LIV Golf competition, which have not yet finalized an alliance.
Donald Trump would not reappoint Jay Powell as chairman of the Federal Reserve. The former president accused Powell of seeking to lower interest rates to help President Biden, without providing any evidence. Trump said that if he wins re-election in November, I would not support Powell continue beyond 2026.
How to fix Boeing
Boeing CEO Dave Calhoun spent most of the company’s fourth-quarter earnings conference call Wednesday focusing on safety. “We caused the problem and we understand it,” he said of a Jan. 5 incident in which a hole went through the sidewall of a 737 Max 9 at 16,000 feet.
DealBook asked corporate culture, aviation and management experts about radical actions Boeing could take to restore public trust.
Design a completely new plane. The 737 Max, the workhorse of Boeing’s fleet, is the latest version of the an aircraft introduced in 1968. “They’ve been adding new components, but I think they need a completely new airplane design,” said Bill George, former head of the medical device company Medtronic and an executive fellow at Harvard Business School. Calhoun has previously mentioned that Boeing would not deliver its next all-new aircraft until the mid-2030s.
Move headquarters to Seattle, the heart of the company’s engineering operations. Boeing moved its base to Chicago in 2001, and then near Washington, D.C., in 2022. That was a mistake, George said. “Management needs to get back in touch with the engineers who understand flight safety,” he said.
Host tech-style product launch events. Ashley Fulmer, who researches the dynamics of trust in organizations at Georgia State University’s Robinson College of Business, said Boeing should communicate more with all of its stakeholders. She pointed to the types of large product launch events hosted by tech companies like Apple and Meta as a way Boeing could share information with the public. “I think at this point, looking for no incidents is not enough,” she said. “What they need is a regular demonstration of capability where, for example, they have innovated the design to improve safety and reliability.”
Should Boeing be nationalized? Matt Stoller, research director at the progressive think tank American Economic Liberties Project and author of the monopoly-focused newsletter BIG, recently made the case which it should be, considering that the US government already accounts for much of its revenue and helps sell your planes abroad.
But Richard Aboulafia, CEO of aerospace consultancy AeroDynamic Advisory, said he thought nationalization would be unlikely. In any case, he said, the government could attach conditions for Boeing’s management to defense contracts, although there is little precedent for such a move.
“The risk is not bankruptcy; It is managerial negligence,” Aboulafia said.
Chris Dixon explains why he’s sticking with cryptocurrencies
Chris Dixon has led cryptocurrency investments at Andreessen Horowitz since 2013, managing more than $7.6 billion raised across four cryptocurrency-focused funds. In his new book, “Read Write Own,” he argues that the next wave of the Internet will be built on blockchain, allowing creators and companies to have direct relationships with their audiences without large companies in the middle.
DealBook spoke to him about why he’s still betting on technology. The interview has been condensed and edited.
NFTs seemed like a use case for blockchain going mainstream. Now, most have lost their value. You say that artificial intelligence makes this concept of tokenization more useful. As?
The technology behind NFTs was standardized in 2020. It’s very early. There was 8.7 billion dollars in NFT sales in 2023. So, you know, it’s still significant for a technology that’s four years old.
In a world of generative AI, let’s say you are an illustrator and now AI allows people to get high-quality illustrations just by using an app. I think that will happen in all creative categories and in that world I think it is important to explore new sources of income for creative people.
I compare it to video games, where virtual goods now represent almost half of the industry. Most popular games like Fortnite don’t charge you to play because there are too many games available. So instead, they give away the game and charge for virtual goods. That is a pioneering model.
Many of the blockchain use cases you suggest (social networks where the user can easily leave with their followers, platforms for musicians to create and sell collectibles) sound exciting. Why are none of them happening widely right now?
The first paper on AI was published in 1943. There was a famous AI investment bubble in the 1980s, believe it or not. And then, of course, there was ChatGPT.
Smartphones already existed in the 90s. And then there was the iPhone.
Having been in the business, this is how I feel these things go: you need to invest in them, build infrastructure, create applications and grow them. And you start with things that maybe a million or five million people will be excited about. Then, if you’re successful over time, you’ll have a sort of ChatGPT or iPhone-blow-up moment. And we haven’t had that yet with blockchain.
Having invested billions of dollars in cryptocurrency, I don’t think most people will be surprised that you say it’s the future.
I would say that this causality is in the opposite direction. The reason I’m doing this (and not, you know, like a lot of people in Silicon Valley, moving into AI or other areas), the reason I’m sticking with this is because I believe in this.
Quiz: Executive Compensation
A Delaware judge struck down a mega pay package for Elon Musk on Tuesday, prompting the billionaire businessman to announce he would hold a shareholder vote to move the company’s constitution to Texas. The pay package would have earned Musk more than $50 billion. How much compensation was given to Alphabet’s Sundar Pichai, the highest-earning CEO of a publicly traded company, in 2022? (The data was compiled by executive compensation research firm Equilar.)
$45 billion
2.6 billion dollars
$226 million
Find the answer at the end of this newsletter.
Quiz Answer: The compensation awarded to Pichai in 2022 was $226 million.
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