FTX and Emergent Reach Settlement in $600M Robinhood Stock Saga

The settlement between FTX and Emergent over $600 million in Robinhood shares will now avoid a prolonged legal battle and should speed up asset recovery for FTX’s creditors.

Emergent Technology, founded by FTX’s former CEO Sam Bankman-Fried will receive $14 million from the exchange to cover administrative expenses of withdrawing 55 million Robinhood shares. The settlement was filed in a Delaware Bankruptcy Court by FTX CEO John Ray III and could assist in recovering more money for FTX’s creditors while saving the costs for prolonged litigation.

In addition to that the deal is expected to facilitate a quicker resolution to Emergent’s own bankruptcy case in Antigua. Ray defended the settlement by confirming that there was no dispute between the parties and that the agreement was the consequence of “good faith arm’s length negotiations.”

The conflict around the Robinhood shares is a component of the wider aftermath of FTX’s collapse which has resulted in numerous lawsuits. A U.S. judge ordered the bankrupt exchange to pay $12.7 billion in reparations to its customers in a separate development in August 2024. It came after the exchange was charged with embezzling deposits for speculative ventures.

Emergent Acquired Robinhood Shares in 2022

Emergent acquired 56 million Robinhood shares valued at approximately $600 million after Bankman-Fried and Alameda Research reached an agreement in May 2022. The shares were seized by the United States Department of Justice in January 2023, following FTX’s collapse in November 2022. On September 1, 2023, the shares were bought back by Robinhood for around $606 million.

During that time, the DOJ stated that the seized assets constituted property involved in violations of money laundering and could have been the proceeds of wire fraud. Emergent filed for Chapter 11 bankruptcy in February 2023, and is anticipated to resolve the case following the agreement with FTX. The court has scheduled a hearing to review the motion on October 22. If the court approves the agreement, it could expedite the settlement of Emergent’s and FTX bankruptcy proceedings, which might provide some respite to creditors who have been holding out for payment since FTX’s fall.

Could SEC Challenge FTX’s Stablecoin-Denominated Repayment Plan?

The SEC issued a warning last week, stating that it might challenge FTX’s repayment plan if the exchange decides to repay its creditors using stablecoins. However, the SEC attorneys stated that returning funds to creditors using stablecoins would not be strictly illegal if FTX involved crypto assets that are tethered to the US currency.

FTX has considered various strategies to compensate creditors including reviving the exchange. According to the most recent proposal from FTX, claims will be settled and assets will be liquidated based on the asset’s value in U.S. dollars determined during the exchange’s bankruptcy.

Under this plan, creditors would receive their payments in stablecoins or cash. In the meantime, the SEC’s “regulation-by-enforcement” strategy toward the cryptocurrency sector has drawn increasing criticism. Critics claim that the SEC has not created a clear regulatory framework for crypto-assets and has instead chosen to take legal action against major participants in the market.

At least seven U.S. states have united to oppose the SEC’s cryptocurrency regulations. The states, led by Attorney General Brenna Bird of Iowa, have filed an amicus brief in which they contend that the SEC’s effort to regulate cryptocurrencies is an overreach of its authority and a “power grab” that will hinder innovation and the cryptocurrency business. The alliance of seven states includes Arkansas, Kansas, Indiana, Nebraska, Indiana, and Iowa with Oklahoma joining as the newest member.