FTX’s revised proposal to repay its creditors, which was released on May 7th, has caused dissatisfaction among creditors due to a specific clause related to law firm Sullivan & Cromwell (S&C). This clause, known as an exculpatory clause, relieves certain parties of liability in the event of damages occurring during the bankruptcy process.
Sunil, a prominent FTX creditor and member of the FTX Customer Ad-Hoc Committee, which represents over 1,500 FTX creditors, speculated that S&C included the clause to protect themselves from potential liabilities.
This contentious clause comes after the top FTX creditors filed a lawsuit against S&C, accusing the law firm of actively participating in FTX Group’s fraudulent activities and financially benefiting from the fraud. Court documents from February 16th revealed that Sullivan & Cromwell, a century-old law firm, is overseeing the FTX bankruptcy proceedings and had previously served as outside counsel for the exchange in various deals.
FTX reportedly owed up to $1.45 billion in legal bankruptcy fees to S&C, according to compensation filings from December 2023.
FTX’s revised plan has sparked widespread outrage among crypto investors, primarily due to the inclusion of the exculpatory clause. This could potentially lead creditors to reject the proposal. Rob, a pseudonymous FTX creditor and the head of growth at Paradex, voiced his concerns in a post, highlighting that the compensation offered by FTX is considered unfair by some creditors. They argue that the compensation is based on a Bitcoin price of $16,800, which has significantly appreciated since the collapse.
According to Mike Belshe, the CEO of BitGo, none of the FTX creditors will accept this compensation structure. He expressed his views in a post, stating that the collapse of FTX has had a negative impact on Bitcoin.
It remains to be seen whether FTX’s amended plan will be approved, as creditors weigh their options and consider the implications of the exculpatory clause.