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 FTX has tentatively settled a $24-billion tax dispute with the IRS. The IRS will receive $200 million in priority tax claims and $685 million as a subordinated claim if the court approves FTX&amp;#39;s reorganization plan. The settlement addresses tax claims until Oct. 31, 2022. Meanwhile, former CEO Sam Bankman-Fried is back in Brooklyn&amp;#39;s MDC jail. The SEC also announced that it will be closing its Salt Lake office after its controversial case against DEBT Box got dismissed.
 <h2 id="ftx-and-irs-reach-tax-settlement">FTX and IRS Reach Tax Settlement</h2>
 Bankrupt crypto exchange FTX reached a tentative agreement with its largest creditor, the United States Internal Revenue Service (IRS), to settle a $24-billion tax dispute. At first, the IRS claimed that FTX owed it more than $44 billion in taxes, but this amount was later reduced.
 The settlement now depends on the court’s approval of FTX’s reorganization plan. Under the <a href="https://restructuring.ra.kroll.com/FTX/" target="_self" rel="noopener noreferrer nofollow">agreement</a>, the IRS would resolve its $24-billion claim by receiving $200 million in priority tax claims within 60 days of the plan’s approval and $685 million as a subordinated claim that will be paid after customers and other creditors. This settlement covers all tax claims until Oct. 31, 2022.
 FTX believes the settlement reduces litigation risk and increases certainty regarding creditor and customer recovery. The exchange also does not deny owing taxes but disagrees with the amount and specific reasons for the liability.
 It argues that it should not be taxed on funds that were misappropriated by former CEO Sam Bankman-Fried and disagrees with the IRS’ calculations for employment taxes related to salaries that were paid to Bankman-Fried and other executives. FTX also claims it has valid deductions and losses that the IRS is wrongly disallowing because they do not have the proper documentation.
 Despite FTX’s arguments, the IRS is certainly more than ready to pursue tax liability in court.
 FTX proposed a <a href="https://www.prnewswire.com/news-releases/ftx-files-consensus-based-plan-of-reorganization-302138948.html?tc=eml_cleartimeand" target="_self" rel="noopener noreferrer nofollow">new plan</a> on May 8 to repay creditors that aims to fully reimburse all claims plus some additional compensation. Creditors holding claims below $50,000 will be eligible for a 118% recovery, which FTX anticipated would cover 98% of its creditors by number. Repayments will be based on the value of assets at the time of FTX’s collapse in November of 2022.
 <h2 id="what-happened-to-ftx">What happened to FTX?</h2>
 At one time, FTX was one of the largest crypto exchanges platforms. It very quickly became popular through strategic acquisitions of struggling competitors like Liquid Global, LedgerX, and Blockfolio. The company invested heavily in aggressive marketing campaigns, including Super Bowl ads, celebrity endorsements, and buying naming rights to the Miami Heat&amp;#39;s arena. This helped attract attention from customers and venture capitalists, who ended up investing almost $2 billion as crypto prices soared in early 2021.
 However, the decline of cryptocurrency prices in late 2021 and early 2022 was the beginning of FTX&amp;#39;s downfall. In November of 2022, CoinDesk published a revealing article about Alameda Research, another company founded by Sam Bankman-Fried, which showed heavy dependence on FTX&amp;#39;s digital token FTT.
 The leaked balance sheet revealed a serious lack of diversification and showed that FTX had $9 billion in liabilities but only $900 million in assets. It also exposed that Alameda had been borrowing large amounts from FTX using customer deposits, and FTX had not produced audited balance sheets, which caused some questions to pop up about its financial health.
 The situation got even worse when Binance, a major competitor, announced that it would sell all its FTT tokens because of concerns about mismanaged funds. This caused the value of FTT to plummet and led to a mass withdrawal of funds by FTX customers.
 FTX tried to cover the resulting $8 billion gap by blocking withdrawals and looking for emergency financing, but these efforts completely failed. On Nov 8, 2022, FTX blocked customers from accessing their funds, leading to a full-blown crisis.
 FTX ultimately filed for bankruptcy, with its collapse attributed to mismanagement of funds, lack of liquidity, and the mishandling of customer deposits.
 <h2 id="sbf-back-in-brooklyn-jail">SBF Back in Brooklyn Jail</h2>
 Meanwhile, United States officials have returned former FTX CEO Sam “SBF” Bankman-Fried to the Metropolitan Detention Center (MDC) in Brooklyn after a brief transfer to a facility in Oklahoma. Federal Bureau of Prisons records show that Bankman-Fried is being held at MDC Brooklyn after spending roughly a week at the Federal Transfer Center in Oklahoma City.
 The reasons for Bankman-Fried&amp;#39;s return to New York are still unclear. After his sentencing, SBF’s <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.590940/gov.uscourts.nysd.590940.425.0_2.pdf" target="_self" rel="noopener noreferrer nofollow">lawyers requested</a> that he stay at MDC Brooklyn to assist in appealing his conviction. Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York, who oversaw his trial, also recommended that he stay in the state.
 In November of 2023, a jury convicted Bankman-Fried of seven felony counts related to the misuse of customer funds at FTX and Alameda Research. Judge Kaplan sentenced him to 25 years in prison in March. His legal team then <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.590940/gov.uscourts.nysd.590940.428.0.pdf" target="_self" rel="noopener noreferrer nofollow">filed an appeal notice</a> in April, though the grounds for the appeal have not been specified.
 Bankman-Fried was one of the few people tied to the collapse of FTX and Alameda to plead not guilty and face a jury trial. On May 28, Judge Kaplan sentenced Ryan Salame, former co-CEO of Bahamas-based FTX Digital Markets, to 90 months in prison. Other former executives, including Caroline Ellison, Gary Wang, and Nishad Singh, have pleaded guilty and are still waiting for sentencing.
 After his sentencing, Salame posted on X that he might publish a memoir about his time at FTX and Alameda. In contrast, Bankman-Fried has not posted on X since January 2023 and has very rarely spoken to the media during his trial.
 The next well known figure in the crypto space to face criminal charges will be former Celsius CEO Alex Mashinsky, whose trial is set to begin in January of 2025.
 <h2 id="sec-to-close-salt-lake-office">SEC to Close Salt Lake Office</h2>
 In other legal news, the United States Securities and Exchange Commission (SEC) <a href="https://www.sec.gov/news/press-release/2024-67" target="_self" rel="noopener noreferrer nofollow">will close</a> its Salt Lake Regional Office in 2024 after a federal judge ordered the regulator to pay roughly $1.8 million in attorney and receivership fees. The SEC now plans to shift operations to Denver.
 This decision comes after Judge Robert Shelby&amp;#39;s <a href="https://storage.courtlistener.com/recap/gov.uscourts.utd.141167/gov.uscourts.utd.141167.313.0_22.pdf" target="_self" rel="noopener noreferrer nofollow">dismissal</a> of the SEC’s civil lawsuit against Digital Licensing, operating as DEBT Box. The judge ordered the SEC to pay approximately $1 million in attorney fees and $750,000 in receiver fees.
 The SEC accused DEBT Box of operating an illegal $50 million crypto scheme, but Judge Shelby found that the SEC had engaged in “bad faith conduct” with regards to a temporary restraining order to freeze DEBT Box’s assets.
 Two SEC lawyers from the Salt Lake office reportedly resigned because of the handling of the case, which may have contributed to the office&amp;#39;s closure. DEBT Box&amp;#39;s chief marketing officer, Miguel Francis-Santiago, believes that the office closure is a direct response to the misuse of power in the DEBT Box case.
 Despite this latest setback, the SEC continues to pursue enforcement actions against a number of other crypto firms, including Coinbase, Binance, Kraken, and Ripple.
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FTX and the IRS Agree to Settle a $24 Billion Tax Dispute

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