FTX Clients Challenge Proposed Bankruptcy Plan Over Asset Ownership Rights
Summary:
FTX clients are protesting the company's proposed bankruptcy plan, claiming it infringes on their property rights by liquidating their assets to repay external creditors. Leading the opposition is the FTX Customers Ad Hoc Committee, which insists that the trading platform return their cryptocurrency rather than a cash balance. Some customers back the scheme, arguing it could speed up investment recovery. Other contentious issues in the FTX bankruptcy case include lawsuits against the firm’s attorneys and disputes over assets seized from ex-CEO Sam Bankman-Fried.
FTX exchange clients are expressing dissatisfaction with the trading platform's proposed bankruptcy plan dated Dec. 16, alleging it infringes on their ownership rights and uses their assets as a means to settle debts with external creditors, which include the US government. An FTX customer spokesperson voiced their desire on June 19 for their crypto assets to be returned, as opposed to receiving a cash balance, declaring: "FTX never got our coins from us." Prior, a Los Angeles Times report issued on May 9 claimed that the majority of FTX customers would recoup their investments, with interest, if the bankruptcy plan is accepted.
The FTX Customers Ad Hoc Committee, created to defend the interests of FTX clients throughout the insolvency proceedings, is presenting objections to the plan. During a discussion with Cointelegraph on June 19, committee board member, Sunil Kavuri, expressed that the current plan infringes on creditors' ownership rights. He stated the FTX case should not be likened to the bankruptcy of Celsius, a crypto lending firm. Kavuri pointed out that unlike Celsius, where customers conceded ownership of their cryptocurrency upon agreeing to the terms of service, FTX clients did not, maintaining ownership of their funds. As such, Kavuri asserted that FTX should be obligated to return those assets.
Interestingly, Kavuri also accused FTX of intending to liquidate customer assets to repay non-secured creditors, such as the U.S. government. He questioned the appropriateness of the victims footing the bill for IRS and CFTC penalties. He further claimed that the exchange used customer funds to repay lenders, such as Genesis and Binance.
FTX's viewpoint is in stark contrast to Kavuri's. Reportedly, they stated that the plan would enable customers to recoup what they're owed in full. A May 9 report in the LA Times quoted FTX suggesting that nearly all customers would recover their investments plus interest if the plan is approved. According to this report, those owed less than $50,000 would receive around 118% of their claim.
Kavuri dismissed the idea that the current plan would make customers whole. He argued that without a legal basis to repay customers in cash, the exchange must return the actual cryptocurrency assets rather than sell them for a profit and retain part of the proceeds for themselves or third parties.
FTX intends to offer the bankruptcy plan up for voting, but clients led by Kavuri filed a motion on June 5 to halt this action. The plan presumes FTX owns the customers' cryptocurrency and disregards whether the assets intended for distribution through the plan are the property of FTX. The clients request legal dismissal of the bankruptcy plan because it is "unconfirmable as a matter of law."
On Dec. 16, 2023, the FTX estate filed an order suggestion to approve the bankruptcy plan. Revealed on May 7, the plan is scheduled for approval on June 25. If the plan progress is unimpeded, the deadline for voting will be Aug. 16 at 8:00 pm UTC.
Some customers of FTX have expressed their support of the bankruptcy plan, claiming it will enable quick fund recovery. User Sgd pointed out that since property can't be returned, endorsing the plan is possibly the best course of action. Others feel confident the plan will be passed since it favors return of funds with an additional amount.
Physical property rights aren't the sole contentious issues in the ongoing FTX insolvency case. FTX customer Edwin Garrison invoked a lawsuit in February against the firm’s attorneys Sullivan & Cromwell, alleging the firm's benefit from the fraudulent activities of the exchange. Notably, an independent assessment carried out on May 24 could not provide compelling proof that the legal firm was complicit in the fraud.
The FTX estate and the Ad-Hoc Committee continued squabbles over assets confiscated from ex-CEO Sam Bankman-Fried during his criminal proceedings. When FTX ceased withdrawals, an estimated $8 billion was lost in one of the most significant cryptocurrency exchange crashes in history. For his part in FTX's downfall, Bankman-Fried was found guilty of fraud and received a 25-year prison sentence.
Published At
6/21/2024 2:59:00 PM
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