(Bloomberg) -- Arush Sehgal and Acaena Amoros Romero saw their life savings disappear, all at once, into the vortex of FTX’s fraud-fueled collapse.

Then the crypto market staged a stunning surge back from the depths of the 2022 crash. Over the next year and a half, Bitcoin climbed so much, in fact, that by their count what they had entrusted to FTX — if it weren’t tied up in bankruptcy court — would have swelled to at least $4 million. 

That’s at the root of mounting anger at what is — by traditional measures, at least — a surprising victory for FTX’s more than two million customers, all of whom will have a chance to vote on the plan for winding down the company’s bankruptcy.

While FTX said it expects to collect enough cash to pay them 100% of what they’re owed, plus interest, there’s a catch. They’re not getting their crypto back. Instead, they’re getting US dollars based on what the accounts were worth when FTX went bust in November 2022. Since the price of Bitcoin has roughly quadrupled since then, that means they missed out on the biggest crypto bull run since the go-go days of the pandemic.

“A hundred cents on the dollar doesn’t really mean much to me,” said Sehgal, a former member of the FTX creditor committee who has been a vocal critic of how restructuring advisors have handled the case. Sehgal and Romero say they stand to recoup about $1 million — a quarter of what their account would be worth. 

Compared with the outcomes of most bankruptcies, FTX is shaping up to be an improbable success, considering that creditors often battle it out for just pennies on the dollar. 

When the company went broke, customers’ prospects looked especially dim, after co-founder Sam Bankman-Fried’s hedge fund had secretly gambled away their crypto, leaving a massive hole. Some account holders sold off their bankruptcy claims at a deep discount rather than roll the dice on the outcome. 

Then the crypto rally, fueled by the rollout of Bitcoin exchange-traded funds, inflated the value of FTX’s assets as they were slowly liquidated. At the same time, FTX’s newly installed managers tracked down the cash and crypto scattered around a byzantine network of accounts and sold off other assets, like a stake in the artificial-intelligence startup Anthropic. 

Together, the steps more than made up for the hole left by Bankman-Fried’s hedge fund. On May 7, the company said it expects to have as much as $16.3 billion once it’s done selling assets, far more than the approximately $11 billion owed to customers and other private-sector creditors, leaving most of them in line to get 118% of what they had in their FTX accounts. Government regulators will still get just a faction of they’re owed, and the company’s shareholders will be wiped out, as is often the case in bankruptcy since there’s usually nothing left over for the original owners.

Only a handful of large corporate US bankruptcies in recent times — including Hertz’s — have wound up repaying creditors in full. The FTX payouts are also set to exceed those in other crypto cases. If all goes as planned, the checks should start arriving later this year — an unusually rapid turnaround.

“That is a bankruptcy grand slam when you compare it to other major fraud cases over the past twenty five years,” said Deirdre O’Connor, managing director at Epiq, which provides claims processing in large bankruptcy cases.

But the plan hasn’t appeased some FTX customers. More than 80 have filed letters with the bankruptcy court attacking the decisions made by FTX Chief Executive Officer John Ray, including how the value of their accounts were determined.

Sehgal said he has heard from some 1,500 with similar views through FTXvote, which he set up to rally opposition to the plan. In January, one group sued in bankruptcy court, claiming that their crypto was not the kind of property that FTX was allowed to sell. The judge overseeing the FTX Chapter 11 will likely need to resolve that case before any payouts can flow to customers. 

Ray, a long-time bankruptcy expert who was brought in to handle FTX’s collapse, said the decisions have been made in line with bankruptcy law and how similar cases have been handled. Bankman-Fried’s fraud and poor record keeping meant that returning crypto to customers wasn’t an option because there simply wasn’t enough to go around. What it does have is being sold to repay creditors.

“We’re not a hedge fund," Ray said in an interview before the current plan was released. “I think this is somewhat lost. We’re managing an estate for the benefit of all creditors, we’re not risk takers.”

It’s unclear whether the customer complaints will be numerous enough to jeopardize the outcome, and many will likely welcome their payouts. In June, US Bankruptcy Judge John Dorsey will consider sending the FTX plan out to account holders for approval. Dorsey will take that vote — as well as creditor comments — into account when considering whether to sign off on it. 

The rancor from some corners is adding an element of uncertainty to the proceedings, given that the number of creditors is far larger that what is seen in a typical bankruptcy. The crypto speculators — including some die-hards who were prepared to ride out the market’s trough — are also different than the investment firms, vendors and other creditors who typically determine the outcome of a bankruptcy case.

“I can’t recall a case with that many voters,” said Cliff White, a bankruptcy lawyer who oversaw the Office of US Trustee for 17 years. “Here you’ve got a more multifaceted range of groups that is more difficult to corral.”

Veno Bojanovsky, 34, didn’t care to follow news of FTX’s sudden demise too closely, resigned to the feeling of being “scammed” by the company. 

Bojanovsky, who like many FTX’s customers lives overseas, said before the latest plan was released that he’s skeptical he’ll get what he thinks he’s owed. Despite his misgivings, he held to his FTX claim instead of selling it off. 

“I’ve not regretted it, though I still don’t trust I’ll get anything much for it,” he said.

--With assistance from Lucca De Paoli and Claire Ballentine.

©2024 Bloomberg L.P.