FTX Customers Raise Concerns Over Proposed Bankruptcy Plan
Some FTX customers are expressing their objections to the proposed bankruptcy plan put forward by the troubled exchange on December 16. They argue that the plan violates their property rights by selling off their assets to pay third-party creditors, including the United States government. Instead, these customers are demanding the return of their cryptocurrency rather than receiving a cash balance.
Representatives of the FTX Customers Ad Hoc Committee, a group formed to represent the interests of FTX customers in the bankruptcy case, have voiced their concerns. Sunil Kavuri, a board member of the committee, claims that the bankruptcy plan infringes on the property rights of creditors. He emphasizes that FTX customers never relinquished ownership of their cryptocurrency, unlike customers of crypto lending firm Celsius. Kavuri argues that since FTX customers did not transfer the title of their coins to the exchange, the funds remain their property, and FTX is obligated to return them.
Kavuri also criticizes FTX for using customer assets to pay off unsecured creditors, such as the U.S. government and Alameda lenders like Genesis and Binance. He questions why victims should be responsible for paying fines imposed on FTX and argues that Binance has profited from customer deposits used to settle the Binance stake.
In contrast, the FTX estate claims that the proposed plan will enable customers to receive their owed funds. According to a report from the Los Angeles Times, FTX stated that “nearly all customers of FTX will get their money back, plus interest” if the plan is approved. The report further states that customers owed less than $50,000 will receive approximately 118% of their claim.
However, Kavuri disputes these claims and argues that the exchange lacks a legal basis to repay customers in cash. He insists that FTX must return the cryptocurrency itself instead of selling it for a profit and retaining some of the proceeds.
On June 5, Kavuri and other customers filed a motion to halt the bankruptcy plan from being put to a vote. The motion challenges the assumption that customers’ cryptocurrency belongs to the FTX estate and questions whether the assets intended for distribution are actually part of the estate. If the court rejects the plan’s disclosure statement, it would mean rejecting the current version of the plan.
The FTX estate filed a proposed order to approve the disclosure statement on December 16, 2023. The plan itself was disclosed on May 7, and a hearing to approve the statement is scheduled for June 25. The deadline for voting on the plan is set for August 16 at 8:00 pm UTC.
While some FTX customers support the bankruptcy plan, arguing that it will expedite the return of at least some of their funds, others believe that it will not adequately compensate them. They claim that there was not enough cryptocurrency to be returned to customers on a 1:1 basis, and therefore, the plan is a reasonable compromise.
In addition to property rights, other issues are being contested in the FTX bankruptcy case. Edwin Garrison, an FTX customer, launched a lawsuit against the exchange’s legal representatives, Sullivan & Cromwell, alleging that they profited from the exchange’s fraud. However, an independent examiner concluded on May 24 that there was insufficient evidence to prove the law firm’s involvement. A second investigation into the law firm’s activities has now been ordered.
The Customer Ad-Hoc Committee and the FTX estate are also engaged in a dispute over assets seized by former CEO Sam Bankman-Fried during his criminal trial.
The collapse of FTX was one of the most significant failures in the history of cryptocurrency exchanges, resulting in an estimated loss of $8 billion in cryptocurrency. Bankman-Fried was subsequently convicted of fraud and sentenced to 25 years in prison for his role in the exchange’s bankruptcy.